Friday 24 February 2017 2:11 pmCFA Institute Talk

What are the biggest obstacles to global economic growth?

What is city talk? Info Info. Latest
Jason Voss, CFA, is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Previously, he was a portfolio manager at Davis Selected Advisers, where he co-managed the Davis Appreciation and Income Fund to noteworthy returns.

Global economic growth is lagging. The question is why. For insight into this, we asked readers of CFA Institute NewsBrief what they believe is the single biggest obstacle to global economic growth.

I believe the biggest obstacle to global economic growth is . . .

* Results do not add up to 100% due to rounding.

The rise of populism

Currently, populism is most visibly reflected in the UK vote for Brexit and the election of President Donald Trump in the US. There are also surging populist candidates in critical upcoming elections in France, the Netherlands, Italy, and even Germany.

Poll results reflect these trends: 35 per cent of the 820 respondents identified the rise of populism as the principal constraint on growth. Nobody knows where global populism will lead and, thus, this category could also be called uncertainty.

Geopolitical tensions

Populists take a very different approach to foreign policy. They tend to favour stronger defence, more aggressive diplomacy, and an “us-versus-them” mentality. About a quarter (26 per cent) of respondents believe geopolitical tensions now constitute the primary restraint on economic growth.

Possible trade wars

Populists are also leading a reassessment of global trade policy. Voters throughout the world are casting their ballots for candidates who support nationalistic economic policies. In fact, 20 per cent of poll respondents believe the potential drawbacks of trade wars and new tariff walls are the main check on growth.

Lack of global economic coordination

One of the dividends of a stable international system of both politics and trade is global economic coordination.

In the heart of the Great Recession, central banks and regulators coordinated their responses to the economic meltdown. Now central banks are diverging in their policy responses as they turn their eyes to the domestic theatre and away from the international stage. Of respondents, 16 per cent believe this is the largest obstacle to economic growth.

Rising interest rates

The post-Great Recession era is the lowest interest rate environment in recorded human history. Yet inflation is beginning to rise in some of the large economies, including the US and the EU.

In response, central banks — the US Federal Reserve, among them — are considering normalising interest rates by raising them. Will this hinder economic growth? Nobody knows — which may explain why just 4 per cent of poll respondents focused on interest rates.

So what’s the lesson in all of this?

Whatever their cause, impediments to global economic growth are on the rise.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.