The World Bank has joined a growing chorus predicting an end to the global economy's strong run. Stock prices are high relative to earnings and volatility is at historic lows, warnings that economists traditionally take as signs of overheating.
"There is a sense in which financial markets appear to be complacent. That makes room for disruption when there are surprises - a repricing of risk," said Franziska Ohnsorge, a World Bank economist.
Her warning echoes those of institutions including Legal and General Asset Management, which fears the US economy and markets will surge ahead this year before rate hikes burst the bubble and cause a recession.
There are other downside risks to the outlook too. The World Bank fears an upsurge in protectionism could stop trade growth from recovering, undermining GDP. Geopolitical tensions pose a threat as well, as the institution cites trouble in the Korean peninsula, turmoil in the Middle East and any re-emergence of governance problems in the eurozone among the potential risks.
It is difficult to overestimate the importance of the predicted slowdown, even if those risks do not come to pass.
Population growth has driven a substantial portion of GDP growth in recent decades, but this is now slowing. As a result, economic growth, and rising living standards, will have to be driven by productivity growth in future if prosperity is to continue to emerge and poverty to be reduced.
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