February 21, 2018, 1:19 pm
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Behind wage, productivity clouds, world economy is booming


LONDON- The dark clouds of stagnant wages, widening inequality and chronic productivity across much of the Western world are shrouding one of the most remarkable and easily forgotten facts of the year - the world economy is booming.

The value of all goods and services produced globally this year will be around $80 trillion, which is expected to grow by about 3.5 percent next year, possibly even nudging 4 percent for the first time since 2011.

Annual global growth of 4 percent or higher was in fact fairly common in the pre-crisis years. In the 11 years to 2007 that level was reached in seven, with three of those over 5 percent, according to the International Monetary Fund.

Growth of 4 percent next year would mean the creation of almost $3 trillion - the equivalent to the annual output of Britain, the world’s fifth-largest economy - that has to be put to work.

That’s almost $3 trillion, over and above the near $80 trillion of wealth already being produced, for consumers to spend, investors to buy financial market assets, and busi-nesses to expand, invest and hire.

It’s a huge sum, and dwarfs the large but diminishing stimulus being provided by central banks.

Policymakers are increasingly confident that world growth is now self-sustaining, hence their gradual withdrawal from the monetary stage.

“The global economy is in the midst of a mini-boom that started in mid-2016,” according to economists at Bank of America Merrill Lynch. They expect “solid” 3.8 percent global growth next year, up from 3.7 percent this year, with most major economies growing at or above potential.

Their counterparts at Barclays are even more bullish, anticipating that the “self-enforcing economiccycle” will deliver 4.0 percent global growth next year.

Good news, right?

The trouble is for an increasing number of people, even those in countries where growth is strong and unemployment has rarely been lower, it doesn’t feel like good news.

People are in work, as record levels of employment in the United States, United Kingdom, Germany and elsewhere show, but they don’t feel rich, confident or secure. Wages are stagnant.

Unemployment in the United States is 4.1 percent, down from a crisishigh of 10 percent in 2009. Annual wage growth in that time has averaged 2.2 percent and has never topped 3 percent, compared with a precrisis average well over 3 percent.

Wages in the euro zone are rising at almost half that rate, and at 1.4 percent currently have rarely grown more slowly.

Wages rose an average 2.3 percent a year precrisis and just 1.7 percent since, even as the unemployment rate has plunged from its 2013 peak.

Thanks to a mix of low wage growth and a surge in inflation since the 2016 Brexit referendum, workers in Britain are mired in the longest fall in living standards since the Second World War.

People are still feeling the effects of the deep austerity and spending cuts many Western governments pushed through after the 2008 crash in an attempt to repair their shattered public finances. - Reuters
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