With the midterm elections behind us and 2018 nearing its end, curious minds are looking ahead to what comes next for the global economy.
During a panel talk Tuesday, expert prognosticators from The Conference Board painted a rosy picture of the global financial landscape for the remainder of this year and into early 2019. After all, consumer confidence hit an 18-year high in October and is showing no signs of waning in the next few months, which is music to retailers’ ears as we approach the all-important holiday season.
However, chief economist Bart van Ark noted that the business cycles in many developing countries have started to peak, which will likely result in a steady slowdown in growth. In the U.S., for instance, The Conference Board predicted that the GDP will continue to improve in the first quarters of 2019, but then growth will taper off to about 2.5 percent by Q4. Meanwhile, 2019 annual GDP growth for Europe is expected to fall to 1.9 percent, and China’s growth will slow to 3.8 percent, in part as a result of its ongoing trade disputes with the Trump Administration.
Van Ark said that two major challenges will impact future economic growth: shortages in the labor supply and sluggish productivity.
In the U.S., companies across all sectors are already feeling the effects of a labor shortage (and some firms are taking steps to address it). “Traditionally, we might’ve seen this trend in industries with higher skilled workers, but now we’re seeing it for more blue-collar positions like construction workers, engineers, manufacturing technicians,” said Van Ark. “The reason is that these jobs are held by older workers and fewer young people want to enter these fields.”
Additionally, President Trump’s more strict immigration policy is also a contributing factor in the shortage in workers, he noted.
For years economists have highlighted the aging workforce, but experts anticipated that technological innovations would mitigate the impact by making many labor positions obsolete. Bad news for workers, but good news for productivity and the global economy.
Unfortunately, technology has evolved slower than expected, according to The Conference Board, causing productivity to stall in many regions.
Senior economist Brian Schaitkin explained that delayed tech innovation is in some ways due to poor planning on an institutional level. “The current administration’s tax plan was partly an effort to increase technology investment, but there was no clear plan to encourage companies [to develop initiatives],” he said. “There is a lack of a grand plan — not just in the U.S., but globally. Technical advancements on a large scale will require a degree of cooperation between companies and government.”
Schaitkin added, “It’s more complex than just developing the technology itself. For businesses, it’s very complex and costly to integrate these technologies: your business model has to change, the skills of your workers must change. It takes time to do it right and not all companies are willing to make the necessary investment.”
And companies will have even less incentive to make costly investments in 2019, if the U.S. Federal Reserve raises interest rates, added economist Ken Goldstein. “Overall growth will be moderated, so they may feel that they have time to figure it out,” he said.
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