Major economies outside the eurozone are most likely to undergo a “modest” deceleration, rather than a drastic halt, according to research published in the European Central Bank’s latest economic bulletin.
The research draws a guardedly optimistic conclusion, arguing that “signals of a severe slowdown or recession appear contained” in major economies outside the eurozone.
But it warns that “downside risks abound, and have increased lately”. The researchers point to “an exacerbation of trade tensions, for example, or a ‘no-deal’ Brexit scenario” as having the potential to “negatively affect prospects for advanced economies”.
Some advanced economies are still benefiting from a positive output gap, the research says. The recovery began when most economies were experiencing very large output gaps. Growth is outstripping its long-term potential rate in these countries, the authors say, citing the US, Japan, Canada, Switzerland and Denmark.
The authors also point to a number of countries where economic recoveries have continued since the “great recession” caused by the financial crisis. The researchers say the UK, Norway and Australia all fall into this category.
But they say that Sweden “might have already transitioned into a phase in which activity is increasing at a pace below potential”.
The recovery of advanced economies since the great recession has been “relatively unusual in terms of both length and pace”, the authors argue: “The global expansion has now entered its tenth year, and is on track to become the longest on record.”
But they note that it is also “comparatively shallow” in a historical context. Accumulated GDP growth in non-eurozone advanced economies has been less than 20% since 2009, note the authors. This has been “well below the levels seen in previous expansions”.
“The sluggishness of the recovery might be consistent with the view that potential growth has fallen in the past decade,” they warn.