Post-Pandemic World Facing A Gloomy Stew Of Debt, Trade Wars And Poor Productivity

• Record levels of government debt, geopolitical tensions that threaten to split the global trading system, and the likely persistence of weak productivity gains may saddle the world with a slow-growth future that stunts development in some countries even before it starts.
• "Countries are now in a more fragile environment. They've used a lot of their fiscal resources to deal with a pandemic. Then you have policy-driven forces, geoeconomic fragmentation, trade tensions, the decoupling between the West and China," International Monetary Fund chief economist Pierre-Olivier Gourinchas said in an interview on the sidelines of an annual Fed conference. "If we get to a point where part of the world is stuck without catching up and has large amounts of population, that creates tremendous demographic pressures and migration pressures."
• Gourinchas said global growth may settle into a trend of around 3% annually, a figure far below rates above 4% seen when rapid advances in China's economy drove global output higher and which some economists consider borderline recessionary in a world where quick gains should still be achievable in large, less-developed countries.
• China is now suffering what may be chronic economic problems along with a shrinking population. Emerging industrial policies in the U.S. and elsewhere are reordering global production chains in ways that may be more durable or serve national security ends, but also be less efficient.
• The implications of public debt that is "here to stay" varies by country, they said, with higher-debt but higher-income nations like the U.S. likely able to muddle through over time, while smaller nations perhaps face future debt crises or binding fiscal constraints.
• Globally the fallout could be severe if public borrowing steers capital from countries that still have growing populations and less developed economies, said Cornell University economics professor Eswar Prasad.

(Source: Reuters)