It was only with the massive baby boom following World War II that the global economy grew at an average pace close to four percent for several decades.
That period was an anomaly, however—and should be recognized as such.
The global recovery from the Great Recession of 2009 has just entered its eighth year and shows few signs of fading. Rather than rejoicing, then, many experts are now anxiously searching for a way to push the world economy out of its low-growth trap.
Throughout this period, the global economy has grown at an average annual pace of just 2.5 percent—a record low when compared with economic rebounds that took place in the decades after World War II.
The cyclical decline in Japan’s growth is occurring in an environment of very weak long-term growth.
Adverse demographics - specifically a declining labour force - are not being offset by strong enough productivity growth.
Although economists and business leaders complain that a 2.5 percent global growth rate is painfully slow, prior to the 1800s, the world’s economy never grew that fast for long; in fact, it never topped one percent for a sustained period.
Even after the Industrial Revolution began in the late eighteenth century, the average global growth rate rarely exceeded 2.5 percent.
However, these measures are likely to remain modest.
Credit growth will continue to be constrained by the massive debt overhang and the government’s commitment to deleveraging, at least in the medium to long term.