Mr Oliver said a series of calamities, the GFC’s lasting impact on the confidence of investors, constrained capital spending and slower growth in debt have all been drivers of slow economic growth.
After an initial bounce post-GFC to 5.4 per cent in 2010, Mr Oliver said global economic growth has consistently disappointed.
“This can be seen in the progression of the IMF’s economic growth forecasts for each year since 2012. Typically the IMF has started off looking for global growth close to 4 per cent for the year ahead, but each year has had to revise it down to around 3 per cent, pushing the 4 per cent bounce off to the next year.
One of the consequences of this sluggish global growth, he said, is low interest rates.
“When economies are operating below full capacity and inflation is below target, interest rates need to run below nominal growth to hopefully boost growth and use up spare capacity,” said Mr Oliver.
“This is exactly what we have been seeing since the GFC and continue to see now.”
While the US Federal Reserve is “itching to hike”, Mr Oliver said this could be delayed again and when it does come it’s likely to be gradual, while further interest rate cuts look likely in Japan, China, Europe and Australia.
“This means bank deposits will remain a poor investment option except for those who can’t bear any capital loss. So the search for yield and better returns will remain,” he said.
“Periodic growth scares” are also likely to be more frequent since there is a greater fear that adverse developments will trigger a return to a recession.
“As we have seen since the GFC, these can be triggered by the normal fluctuation in economic indicators or external shocks (bad weather, military flare-ups like in Ukraine, the Middle East, etc),” Mr Oliver said.
“Such growth scares keep investors nervous so we have seen a sense of ongoing scepticism about the recovery in the global economy and in share markets that has occurred since the GFC.”
Read more:
