PwC: Macroeconomic, labor force, and environmental challenges ahead

15 April 2019 Consulting.us

The world is facing risks from a host of factors: climate change is set to create long-term issues if not dealt with in a timely manner, while aging populations will impact 40 of the world’s larger economies going forward, resulting in economic and social strains. Trade disputes between the US and other economies continue, while the US also continues to borrow heavily.  

The mini-boom noted between 2016 and 2018 has ended, with 2019 set for slower global growth as the world’s second largest economy scales back expectations. US fiscal stimulus is set to fade, with a resultant decrease in growth rate, while higher interest rates – even with the Fed slowing increases – are likely to impact consumer spending.

Economic projections are routinely made by the big consulting firms, supplementing insights from government agencies and university researchers. The latest PwC "Global Economy Watch" report considers key possible changes to the global economy on the basis of projections for the year ahead.

While Trump has held off on new tariffs in the US's spat with China, he may still deploy them if nothing can be agreed upon between the world’s largest economies. PwC expects businesses to remain in a cloud of uncertainty for 2019 in regards to tariffs, with China only one battleground for future protectionism.Large global shifts as critical issues surfaceWhile the US is seeking to lower its global trade imbalance, the government continues to spend considerably more than it takes in through tax receipts. Analysis shows that the large tax cut is likely to see US government debt surpass $1 trillion annually this year, a figure last seen post-crisis in 2012. The figure will continue to grow as the deficit runs more than 5% of GDP over the coming three years. The figure is well above that of the EU28, whose deficit is around a fifth of that of the US. 

Global issues

The US is likely to face a variety of long-term threats to prosperity, according to the report. Climate change is a key area of concern, cited as one of the world’s biggest risks that could lead to profound social instability, according a recent World Economic Forum report. Devastating wildfires in California caused $400 billion in damages last year – a significant percentage of the state's GDP. 2018 was one of the world’s four hottest on record since records began in 1880, with temperatures close to 1C above long-term trends.

While a warming world is set to create considerable burdens for young people today, the older generation continues to age, with their dependence on the young set to rise significantly over the coming decade in terms of accelerated healthcare and social security spending. The firm’s analysis shows that 40 of the world’s economies will see their workforce shrink. Former Soviet bloc countries are set to have the most significant decreases in working age populations: Ukraine tops the list, followed by Bulgaria, Romania, and Lithuania. The Netherlands and Belgium however, could begin to see their workforces contract going into 2019. A declining workforce can be problematic, particularly if the workforce is also aging, as it requires that lower output is filled by higher productivity to keep economic parity.

The firm notes that the UK is set to lose it status as the fifth-largest global economy in 2019, as India – with the world’s highest population, one of the highest GDP growth figures, and one of the youngest working age populations – surpasses the UK economy. France, too, is likely to pass the UK this year, as Brexit uncertainties and a strong euro push the French economy slightly above that of Britain's.


Profile

×