As Robert F Kennedy cited in 1966 “We live in interesting times” * this is as true today, some 50 plus years later, as it ever was.
We are witnessing a growth revolution today akin to various phases of the industrial revolution or the introduction of new transportation modes. In these eras, the world experienced enormous changes. This included completely new manufacturing processes and inventions like the train, ship and motor car which mobilised people, organised production and resulted in an explosion in economic growth in a way not thought possible previously.
Today there are two concurrent revolutionary socio economic shifts occurring that are reshaping our world and will continue to have massive impacts on global growth well into the future. These events are:
Unique within recent history - but not when there is a game changing shift under way, - growth is achieved but with remarkably low inflation. We suspect that the framework of central banks is likely to be too rigid, given the entirely desirable mix of growth and low inflation does not result in achieving their 2% inflation target.
Despite the economic upheaval experienced post 2007, global growth is currently tracking at an impressive rate of 3.6% annualised. Developed economies annual inflation rates are below central bank targets, tracking at between 1.5% to 1.7%.Even more interesting than the rate of growth is understanding where the frontiers of future global growth are and who will be the actual beneficiaries. As demonstrated by China, income is being deployed globally, via corporates and individuals into non-financial assets, and via forex reserves into official reserves. Specific asset prices lift with these persistent capital flows, in turn crowding out other participants.
This new era will have major impacts on our global economy. In particular, this will occur from the expansion of the global middle class, the lack of real income growth in developed countries and Central Banks setting policies.
In our next commentary we will examine these issues in more detail.
*Day of Affirmation Address, University of Capetown, Capetown, South Africa, June 6, 1966