Global growth appears to be slowing down, but the U.S. remains at the forefront of developed countries

Michael Carey

Michael Carey

Chief Economist of North America for Credit Agricole Michael Carey presented a macro view of world economics Monday at EnerCom’s The Oil & Gas Conference 21. Global economic growth appears to be slowing down, said Carey, but the U.S. continues to lead the pack in terms of growth among developed countries.

Currently, Credit Agricole estimates that the U.S. will continue to grow at a rate of 2.25%, with strong consumer spending reflecting solid employment dynamics. By comparison, Credit Agricole sees just 1.4% growth for Europe in 2017, with a potential recession in the U.K. following Brexit.

China will likely continue to grow at around 6.5% for the next few years, said Carey, but after that, problems could start to arise.

“Much of the growth up to this point has come from government-orchestrated infrastructure spending,” said Carey. In three to five years, some of the weaker investments the government has made could come back to bite China, prompting the banking sector to recapitalize, stalling further growth.

The new normal for the Fed Funds Rate is likely lower than before

In addition to general economic growth, Carey discussed the different approaches being taken by central banks around the world. Credit Agricole expects most central banks will continue with easing programs, while the U.S. Federal Reserve looks to normalize rates.

“The new normal for the Fed Funds Rate is likely lower than in the past,” said Carey. The Fed will likely continue to slowly increase interest rates while closely watching economic feedbacks. The likely effect of the Fed’s divergent policy will be a stronger U.S. dollar however, making dollar-denominated commodities like crude oil more expensive for purchasers.

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Economic populism on the rise

Along with slower growth and divergent fiscal policies from the world’s banks, Carey said he expects to see a continued rise in economic populism.

Events like Brexit happen even when all the experts say they should not because people are tired of feeling like there is an elite class calling the shots, said Carey. Increasingly, countries around the globe are looking toward protectionism as opposed to globalization to protect their interest.

Ironically, this creates sub-optimal performance, said Carey, as economics turn into a zero-sum game. “Globalization is here to stay,” he said, “but near-term friction should be expected.”

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