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Slow economic growth? Global bank asks, 'Who cares?'

  • Calling global economic "dangerously slow" is just a myth, DBS said in a note on Thursday
  • DBS said per capita economic growth was a better measure of performance, especially as the working-age population growth slows or evaporates

The persistent belief that global economic growth is "dangerously slow" and fragile is just a myth, DBS said in a note on Thursday.

"If you're worried about slow growth today, get used to it. It's probably going to be slower five years from now and slower yet five years after that," David Carbon, chief economist at DBS, said in the note.

New recruits listen to speeches during the welcome ceremony for new employees of All Nippon Airways Holdings (ANA) at ANA hanger on April 1, 2015 in Tokyo, Japan.
Chris McGrath | Getty Images
New recruits listen to speeches during the welcome ceremony for new employees of All Nippon Airways Holdings (ANA) at ANA hanger on April 1, 2015 in Tokyo, Japan.

In the July update of its World Economic Outlook, the International Monetary Fund forecast global economic growth of 3.5 percent for 2017 and 3.6 percent for 2018, unchanged from its April outlook.

The IMF report urged countries to pursue structural reforms, such as commodity exporters diversifying their economies, amid concerns about "shocks" upsetting the apple cart.

But Carbon said economic growth wasn't in the danger zone when it's "looked at the way it should be: in per-capita terms," with slower gross domestic product growth due mainly to slower working-age population growth.

"Per person of working age, growth doesn't appear to have slowed at all since 1980," he said. "To the extent that slower growth results from slower population growth, the response should be: who cares? It's growth per person that matters — your income, my wage — not growth in the aggregate."

Carbon noted that the working-age population growth was falling much more rapidly than population growth overall.

He pointed to Japan, where the population as a whole fell by 0.2 percent in 2016, while the working age population fell five times more rapidly, by 1 percent each year.

Europe and the U.S. changes weren't quite as stark, but still showed the same pattern, Carbon said, noting a 0.1 to 0.2 percent decline in Europe's working-age population, while in the U.S. that group was growing at 0.4 percent a year, down from 1.2 percent a year a decade ago.

That translated into simple math suggesting much slower economic growth, he said.

"Since GDP growth is the sum of labor force growth (in simple terms, WAPG) and growth in output per-person (i.e., productivity growth), a one percent drop in working-age population growth brings an equivalent one percent drop in potential GDP growth," he said.

That meant the potential GDP growth in the U.S. was now less than 2 percent a year, down from 3 percent more than a decade ago, he said.

It also indicated that global economic growth was running at or above potential, Carbon said.

"Where's the crisis? Where's the danger? Why should governments pull out all the stops to raise it further? And would it do any good," he asked. "Odds are, it wouldn't."

Indeed, Carbon noted that while Japan's economy was widely considered a laggard, on a per-capita basis, it would become the world's best performer, alongside Germany, with growth twice that of the U.S. and France.

"Whether judged over eight years or 16 years, Japan and Germany are the global growth leaders. The U.S. is a distant third. And France has performed every bit as well as the U.S.," he said.