The global economy: it’s not all bad

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During a bleak economic outlook, the only winners have been wealthy countries, resulting in growing inequality. According to the IMF, during the first decade of this century, annual global growth averaged 3.8%, compared to 3.4% in the 90s.
During a bleak economic outlook, the only winners have been wealthy countries, resulting in growing inequality. According to the IMF, during the first decade of this century, annual global growth averaged 3.8%, compared to 3.4% in the 90s. In the last four years, global growth has averaged at 3.4%. This is far lower than what many had hoped, however it is hardly disastrous by historical standards.

Most of the large, developed economies are developing at a slower rate than they did when their economies were booming. But it is only the Eurozone that has fallen significantly in recent years. The dramatic drop in the price of crude oil will serve as the equivalent of a large tax cut for consumers. The IMF’s decision to downgrade its growth forecast for much of the world is baffling. If anything, with oil prices falling, an upward revision seems reasonable.

Another factor supporting a more positive outlook is the rebalancing that has occurred between the US and China, the world’s two largest economies. Each entered the financial crisis with huge current-account imbalances. The US was running a deficit of more than 6.5% of its GDP, and China had a surplus of close to 10% of its GDP.

Statistics like these disprove the notion that global inequality is on the rise. Gaps in income and wealth may be shooting up within individual countries, but per capita income in developing countries is rising much faster than in the advanced economies. This is not to say that we are still living in challenging and uncertain times. But one thing is clear: the world is continuing to become a better place, economically at least.