While public sector spending rose 4.6% in real terms in 2018/19, private investment fell 5.5% and household spending growth slowed to just 2.1%. While Queensland’s economic growth was the equal third worst (with South Australia) of all states and territories in 2018/19, most jurisdictions saw a weakening in economic growth over the year.
Figure C1A: 2018/19 Economic Growth by State and Australia
Source: ABS data
Two years of falling residential building activity, coupled with rising unemployment has further impacted on retail sales, while a boom in private investment in renewable energy generation during 2017/18 also reversed sharply over the year. Persistent drought has also driven a severe decline in livestock and farm investment. By contrast, public investment rose 6.2% over 2018/19, likely driven by major non-residential building projects such as hospitals and schools as well as purchases of plant and equipment.
Combined with rising population growth (see graph), the unemployment rate hit 6.5% in late 2019, compared to the Australian average of 5.2%.
After slower population growth over recent years (with a low of 1.2% in 2014/15) the acceleration is being driven mainly by higher interstate and international migration inflows. The rising population will provide some support to aggregate household spending, although weak wages and subdued employment growth is expected to continue to constrain consumer spending over the next two years.
Resources investment is now rising for the first time in five years, with producers increasing spending to sustain or expand capacity. Government spending should also rise further, with a number of transport projects in the pipeline. And after falling in 2018/19, business investment is expected to gradually recover.
While national economic conditions are expected to stabilise and eventually improve, the recovery may not be as pronounced as in Queensland initially, given a substantial downturn in residential building activity taking place in New South Wales and Victoria. However, strengthening national economic and construction conditions from 2021/22 onwards will likely present capacity and capability challenges for Queensland’s construction sector.
World Gross Domestic Product (GDP) growth is forecast to decelerate to 2.8% in calendar 2019, the slowest rate of growth since 2009, with only a mild improvement in calendar 2020, with downside risks emerging from the growing coronavirus pandemic. While stronger growth is forecast thereafter, downside risks remain.
Per capita construction of economic infrastructure also rises over time for Queensland and other states reflecting generally higher levels of investment than in the 1980s and 1990s (a period which represented a squeeze on new infrastructure funding). However, the data reveals interesting trends in relative infrastructure spend between the states, and differences in the outlook based on projections by BIS Oxford Economics:
Looking ahead, BIS Oxford Economics expects Queensland’s per capita spend on transport infrastructure to rise again, only falling short of New South Wales due to some very large one-off projects being undertaken in that state, including the $14bn+ Western Harbour Tunnel and Beaches Link and the $15bn+ Metro West. However utilities construction spend per capita, while higher than New South Wales and Victoria, is expected to flatline over the next few years as projected lower levels of renewables generation investment and falling telecoms work (NBN) is offset by a pickup in water-related projects.
 ABS (2019), Engineering Construction Survey, Cat. No. 8762.0
As outlined in previous QMPPRs, no single metric will be able to answer this – closing ‘infrastructure gaps’ depends on choosing the right projects and having a good sense of any quality gaps in the existing infrastructure asset base. However, the per capita measures indicate that Queensland is currently doing a similar amount of economic infrastructure investment – in per capita terms – to the late 1990s, which may not be sustainable over time.
Figure E4A: Transport and Utilities Spend per Capita by State
Queensland’s economy should improve in coming years, although the pace and magnitude of growth is subject to several significant risks. This is due to Queensland is blessed with natural strengths and advantages: increasing connections with the faster-growing economies of Asia, traditionally strong population growth, and high-quality natural resources which support mining, tourism and renewable energy industries. The Queensland State Election and Early State Budget, 2020 SEQ City Deal and 2032 SEQ Olympic Bid are also worthwhile considering in this discussion.
Queensland is also exposed to local, national and global risks. The most obvious downside risk to Queensland’s economic outlook relates to a further weakening in the global economy beyond the forecasts assumed in this report. Weaker than expected global growth, impacting on trade and industrial demand, has the potential to impact investment and production on Queensland resources projects particularly, as well as affecting Queensland’s exports of services such as tourism. In turn, weaker export growth can potentially impact on state government revenues from royalties and other taxes, affecting public spending.
The 2020 Queensland State Election, scheduled to be held on 31 October 2020, will likely have a significant impact on the pipeline as currently unfunded projects may be promised funding, and new projects may be proposed. Already, the ‘election year’ is driving an earlier than usual delivery of the Queensland State Budget – it will be handed down on the 28 April
2020 instead of in June, and before the Federal Budget in May.
The early delivery of the Queensland State Budget effectively compresses the timeframe for making strategic infrastructure decisions and project choices, which often are made in partnership with the Australian Government.
This may give rise to a misalignment between the State and Federal Budgets or could enable greater transparency.
The QMPPR will be updated after the delivery of the 2020/21 State and Federal Budgets in April and May to ensure it remains up to date with the latest project and policy developments.
In March 2019, a Statement of Intent towards an SEQ City Deal was signed in Brisbane by the Council of SEQ Mayors (CoMSEQ), the Queensland Government, and the Australian Government. With City Deal negotiations expected to last 12-18 months, it is likely that some form of City Deal will be completed in 2020, making this the second such deal between the three tiers of government in Queensland (the first being the Townsville City Deal struck in 2016).
As highlighted in previous QMPPRs, the key benefit of a City Deal is the focus they bring to a coordinated and funded infrastructure strategy for the region. The Townsville City Deal unlocked funding for Stage 2 of the Haughton Pipeline, subject to the outcomes of a business case assessment, as well as confirming funding for the Port of Townsville Channel Capacity Upgrade, establishment of the Townsville Industrial Development Board and acceleration of the State Development Area to explore opportunities for new industrial development, as well as confirming funding for the preservation of the Townsville Eastern Access Railway Corridor.
An SEQ City Deal could have a similar impact on confirming funding for significant transport and utilities infrastructure in the region as well as accelerating developments (particularly if a SEQ 2032 Olympics bid is successful).
Much of the sporting infrastructure required for the Games is already built, but an SEQ 2032 Olympics would still require significant capital expenditure on upgrading or rebuilding venues as well as enhancing transport infrastructure, particularly, in the SEQ region.
According to preliminary estimates prepared in May 2019, the total cost of hosting the Olympics and Paralympics was estimated to be $5.3 billion, with $1.7 billion coming from the International Olympic Committee (IOC), $2.7 billion from domestic revenue and $900 million as a net cost of running the Games. Past experience would suggest that these costs could end up higher.
A 2016 study on costs and cost overruns at all Olympic Games between 1960 and 2016 has found that the average cost has been US$5.2b and the average cost overrun has been 156% in real terms. This makes the Olympics the highest average cost overrun of any type of megaproject. No city has run the Games without a cost overrun since the Los Angeles Games in 1984, while the 2020 Tokyo Olympics are currently expected to cost US$12.6b, up from a budget of US$7.3b.
In Queensland’s favour, hosting the Commonwealth Games on the Gold Coast in 2018 has already established a significant portion of direct Games infrastructure.
The 2032 SEQ Olympic and Paralympic Games Feasibility Study commissioned by the CoMSEQ takes the view that further investment should prioritise projects with strong legacy benefits. Furthermore, the Olympic Games Knowledge Management Program, created during the Sydney 2000 Games, has appeared to be successful in reducing cost overruns at the subsequent four Olympics compared to pre-Program outcomes, although cost increases for the Tokyo Games are more significant. Finally, the recent announcement from the IOC that it will contribute US$1.8 billion (A$2.5 billion) to the 2028 Los Angeles Games suggests that a A$1.7 billion IOC contribution to an SEQ Games may be conservative – in other words, if costs for the Games are kept in check, the projected loss may not be as high as estimated in the feasibility study.
If Queensland were successful in bidding for the 2032 Olympics, it is expected that there would be a positive impact on the major project pipeline, business confidence and international reputation.
Figure E8: Base and Advanced Scenarios for Transport Investment in South East Queensland
The south east Queensland region, representing roughly two-thirds of the state’s population, is already expected to experience strong population growth and demand for transport services in coming decades. The SEQ Regional Strategic Transport Road Map developed by CoMSEQ in conjunction with the Games Feasibility Study indicates that a winning bid would require an accelerated (‘advanced’) scenario for transport projects including faster rail links between Brisbane and Gold Coast, Sunshine Coast and Ipswich and an upgrade to the Logan Motorway to be delivered prior to the Games instead of in following decades. This is on top of committed base investment including Cross River Rail, Brisbane Metro, and Pacific Motorway and Bruce Highway upgrades. Here, the establishment of the National Faster Rail Agency – and a commitment to a Brisbane to Gold Coast faster rail business case – in the 2019/20 Commonwealth Budget is a positive step.
There is still uncertainty as to whether Queensland will bid and the timing of selection of the winning bid, which could occur anytime between 2021 and 2025. On a more positive note, assuming the current wave of rail infrastructure rolls out as planned, the completion of very large metro and other rail projects in Melbourne and Sydney could provide a legacy of newly skilled labour to utilise on faster rail initiatives.
The most obvious downside risk to Queensland’s economic outlook relates to a further weakening in the global economy beyond the forecasts assumed in this report. Weaker than expected global growth, impacting on trade and industrial demand, has the potential to impact investment and production on Queensland resources projects particularly, as well as affecting Queensland’s exports of services such as tourism. In turn, weaker export growth can potentially impact on state government revenues from royalties and other taxes, affecting public spending.
While most of these risks are outside of the control of those operating in the construction of major projects, it remains important that governments and industry participants focus on what can be controlled to ensure that the Queensland construction industry and economy remains on a sustainable footing. This includes taking on the recommendations in this Report with the aim of mitigating the volatility of the boom/bust investment cycle and achieving high quality, predictable and sustainable outcomes, safe workplaces and decent working conditions.
The coronavirus (COVID-19) outbreak, which originated in China in late 2019, introduces a significant risk to Australian and global economies. Given the direct impact on production and spending in China, BIS Oxford Economics has already revised China’s economic growth in the first quarter of 2020 to be down by more than 2 percentage points. Even if there is a rebound in the second quarter of 2020, total growth for 2020 is now forecast to be closer to 5% for 2020, compared to 6.1% in 2019.
With the spread of COVID-19 outside of China, there is potential for a more serious and long-lasting global impact. The sharp weakening in first quarter activity in China is already applying pressure to the global economy, with fears that sharp sell-offs in financial markets could expand into the real economy. A sharp contraction in global tourism and trade as COVID-19 spreads in Asia, Europe and the Americas during the first quarter is now likely. Longer term, China’s substantial role in global supply chains will continue to impact production in countries outside of China, with Oxford Economics calling the first quarterly decline in global GDP since the global financial crisis.
Figure C8: Projected impact of coronavirus outbreak on GDP
For Australia, the earliest and most significant impacts on growth are expected to come through trade services. In 2019, almost 1.5 million Chinese people visited Australia, including approximately 165,000 students in our universities and colleges. This market is at risk from China’s suspension of outbound group tours for two months, decisions in Australia to cancel flights to and from China and tougher travel restrictions introduced by the Australian Government. However, the virus epicenter of Wuhan is a significant manufacturing hub which means the longer strict virus countermeasures are in place, the greater the risk to industrial production and manufacturing – supply chain and commodity economies, such as Australia, are most likely to feel these second-round impacts.
The Queensland economy is particularly exposed to the economic risk because it is Australia’s leading economy for tourism and is a key ‘resources state’ that exports raw commodities for Chinese manufacturing. Weaker growth will likely impact on State Government revenues (through taxes and royalties) and financial position. In this situation, there is a risk that public sector funded capital projects – such as those included in the major projects pipeline – could be delayed or cancelled to preserve the state’s financial position.
China accounts for over 30% of Australia’s exports, and sits at the heart of East Asian supply chains. While authorities are becoming more tolerant of lower growth in exchange for financial stability, the coronavirus pandemic has the potential to drive growth lower than policymakers would like. Consequently, authorities may focus again on infrastructure investment which will have benefits for commodity exporters such as Queensland. Over the medium term, we expect the government to continue to gradually liberalise the financial system and broader economy, which will allow balance sheets to adjust and for financial risks to ease back. As in previous years, the direction of the trade conflict with the US remains the wild card for China (and global) economic growth.
One of the most significant drags on national economic growth in 2020 is expected to be falling housing investment. Overall, Queensland remains better placed than New South Wales or Victoria given it has already seen a substantial correction in dwelling building activity (particularly in the inner-city units segment) and, with stronger population growth, will likely outperform other east coast states in terms of house price growth. However, housing activity has continued to underperform in Queensland despite strengthening population growth and further cuts to interest rates by the Reserve Bank. While a significant recovery in housing activity is forecast from 2021/22, this will require a change in psychology through rising real wages, employment and house prices, just as much as stronger housing demand fundamentals.
Drought conditions continue to impact Queensland’s regional economies, cutting agricultural production and spending, and this is assumed to remain an issue through calendar 2020 before improving in subsequent years. An earlier easing in drought conditions could provide some upside to Queensland’s economy in the near to medium term, but this is not expected.
Economic growth challenges sees policy uncertainty remain on the fiscal policy front, as well as in climate change and energy policies. Despite the possibility of achieving the first Commonwealth budget surplus since 2008, there remain questions on the suitability of running budget surpluses (which are a net drag on the national economy) during periods of economic weakness, and whether infrastructure spending or tax cuts could or will be accelerated to drive stronger economic outcomes.
Here, attention has been focused so far on accelerating major transport investments, but consideration could also be made for boosting infrastructure maintenance spending or spending in drought-affected communities that could have a broader economic impact.
Meanwhile, the Queensland state election in October 2020 will also create a lot of economic ‘noise’ through the year. The 2020-21 State Budget will be released earlier than usual in April 2020 and may lead to a misalignment and delay in Australian Government funding in areas like transport.
Beyond traditional fiscal policy, a lack of clarity and consistency in Australia’s energy and climate change policies remains a major short-term risk and longer term threat to the Queensland economy. Policy failures in energy have seen substantial rises in gas and electricity prices, which have stopped energy-intensive investments proceeding and hampered the competitiveness of manufacturers – with some major businesses threatened with closure and/or relocation overseas. Once lost, these industries are unlikely to return.
Meanwhile, the abandonment of a coherent, market-based carbon-reduction scheme in 2014 is hampering efforts to reduce Australia’s greenhouse gas emissions and target larger reductions – with Australia’s current target of 26-28% below 2005 levels by 2030 highly unlikely to be achieved. This means the economy will – at some stage over the medium to longer term – need to undertake some harder structural adjustments with larger negative economic impacts on potential growth, in order to reduce emissions.
The beneficial flipside to the development of a coherent energy and climate change policy – is that it would likely provide the certainty needed to stimulate further investment in renewable energy generation projects. As outlined in this Report, renewable energy generation and transmission works was a major driver of growth in privately funded engineering construction in Queensland recently, although the lack of clear and consistent policy targets at the national at state level have seen new renewable energy investment collapse in 2019.
Increasing climate activism, both in Australia and globally, presents structural risks to traditional Queensland industries such as coal mining and fossil fuel power generation which directly provide employment to up to 32,000 Queenslanders, particularly in regional towns. These industries also provide an income stream to governments through business and income taxes as well as royalties which are used to help fund public infrastructure investment.
Given this, it is vital for the Queensland Government to develop a positive transition plan for these industries and the regions which depend on coal mining and fossil fuel generation. While these industries will not shut down overnight – particularly given growing near term demand for coal in Asia – the medium to longer term risks are very real. Fortunately, Queensland is well-placed to develop many more jobs in lower carbon emissions technologies (e.g. hydrogen, renewable generation, and metals and minerals for batteries) and industries such as tourism, education, manufacturing and agriculture. What is needed is a coordinated plan which brings in all stakeholders – regional towns, industry, unions and governments – to make the transition a positive one, as well as coordinated and consistent policy between levels of government. Experience from other countries, such as Germany, show this can be done.
Longer term, the main risk to Queensland – and Australia’s growth prospects – relate to the fundamental drivers of growth – lower trend population growth and declining labour productivity growth. However, we expect relatively high income levels to continue to attract migrants. Furthermore, as the positive benefits of the terms of trade and increased labour supply of the past decade or two start to wane, we expect both governments and businesses to make a more concerted effort to invest to sustain growth in productivity in the long run.
Growth in State Final Demand (the biggest driver of employment) also slowed, with annual growth falling to just 1.2% for 2018/19. Employment growth has also eased back, from 4.1% in FY18 to 1.5% in FY19. Queensland’s unemployment rate remains above the national average, at 6.5% versus 5.2%.
With public sector spending rising 4.6% in real terms through 2018/19 (+6.2% for capital spending and +4.2% for government recurrent spending), and net export performance also positive, the recent cause of weakness in the Queensland economy has been private sector spending, particularly private investment.
Figure C1: Net Annual Change in Investment and State Final Demand, Queensland
Economic growth in Queensland is expected to improve from here, but faces significant near term risks. Resources sector investment is now rising, with coal and gas producers increasing spending to replace worn out equipment, wells and mines and looking to expand capacity to meet demand. While there are significant global risks in the near term, improving global economic conditions from 2020/21 should continue to support further investment. Government investment is also expected to continue to rise through the early to mid-2020s, with a number of road and rail projects in the pipeline, rising expenditure on health and education building and a need for works to address the impact of natural disasters including droughts and bushfires. And, after falling in 2018/19, business investment is expected to recover somewhat in 2019/20 and beyond, with a number of office blocks, hotels and entertainment projects getting underway.
Figure C2: Queensland Economy – Components of State Final Demand
$Billion, Year Ended June
But headwinds to the Queensland economy remain. Dwelling commencements have continued to fall in the first half of 2019/20, but are expected to start improving from June quarter 2020 in response to recent stimulus measures including RBA rat cuts. Houses are expected to lead the next upturn in Queensland. Given pockets of oversupply in the Brisbane apartment market, it will take longer for high density construction to begin its recovery. This will continue to affect other areas of private spending, including housing-related construction and household spending on furnishings and fittings until a recovery comes through in the early to mid-2020s. Employment growth remains weak compared to the strong phase of growth in 2017/18 and wage growth, while improving a little, remains anemic.
Ultimately, accelerating population growth will drive demand for new house construction, although a strong recovery in housing activity is not anticipated for another 1-2 years yet. Population growth has picked back up to 1.9% following slower population growth over recent years (with a low of 1.2% in 2014/15). The acceleration is being driven by higher net interstate migration (NIM) and direct international migration inflows. The rising population will also provide some support to aggregate household spending, although weak wages and subdued employment growth will continue to constrain consumer spending over the next two years.
Over the longer term, the Queensland economy should once again outpace the national economy, if only slightly. Underpinning this will be a moderately faster pace of labour force growth – Queensland typically experiences significant positive levels of NIM, and after falling in recent times as a result of the relative unattractiveness of the labour market, this trend should return. This in turn will underpin economic growth, with momentum in GSP expected to recover to around and above 3% by the mid-2020s.
Figure C3: Queensland Annual Population Increase by Source
Thousands of Persons
Most states, as Australia as a whole, saw a significant weakening in economic growth through the year. Of greater concern is Queensland’s relative performance. The 1.2% growth in State Final Demand (which sums household spending, government spending and private investment) for 2018/19 was the second worst of all states and territories (with only Western Australia – the other major ‘resources state’ – worse), while the unemployment rate is now the highest in the nation. This poor performance seems contradictory given the state’s natural advantages which have regularly seen the state economy outperform the rest of Australia – even before the resources investment boom. In particular, the sharp fall in privately-led spending in the economy points to a temporary lack of confidence from businesses to invest and households to spend, yet higher levels of net interstate and overseas migration indicate that Queensland is still an attractive place to move to – and this stronger population story is ultimately expected to drive higher levels of demand, employment and income growth.
Indeed, during 2019/20, economic growth between the states is expected to become more synchronised, with an uptick in resources-related and public investment assisting Queensland and Western Australia, while a combination a sharply declining housing activity, weaker population growth, and a pause in the (strong) growth in infrastructure investment further impacting the performance of the New South Wales and Victorian economies. Consequently, growth in SFD across all major states and territories (bar South Australia) is expected to synchronise in the weak 1-1.5% range during 2019/20. By 2020/21, however, growth is anticipated to accelerate once again, although this time it is Queensland and Western Australia that are once again expected to outperform the national average, supported by relatively stronger population growth, rising private investment (across resources and housing) and further growth in public spending.
Figure C4: Growth in State Final Demand (States) and Gross National Expenditure (Australia), 2001-2021, Annual Percent Change
In particular, the projected upswing in major project activity as outlined in this report is likely to synchronise with other investment and spending cycles, driving a strong boost to incomes, employment and economic growth:
The challenge facing Queensland is that a similar synchronisation of investment cycles is also expected across other major states and territories within Australia (as well as in economies overseas). While investment and related construction activity is expected to weaken in New South Wales and Victoria over 2019/20 and 2020/21, these (along with most states and territories) are expected to see rising levels of investment in subsequent years from both the public and private sectors.
Figure C5: Major Transport Projects Over $2 billion, Australia, Value of Work Done
Overall, transport-related infrastructure spending appears to be synchronising across the major states through the 2020s. The peak of “mega-project” investment across road and rail infrastructure (as shown in Figure C5) is not expected until the early to mid-2020s based on current projections – and the perceived ‘slump’ in investment post 2023/24 (based on the completion of known projects) may not eventuate if state governments continue to use asset recycling strategies, debt finance, or private public partnerships to extend infrastructure investment further. If capacity or funding constraints bite, it is likely that the peak of the ‘wave’ in Figure C5 will be later, with a ‘higher tide’ of work sustained for longer, than the ‘tsunami’ presented.
New South Wales alone has raised over $70 billion from long term asset leases and asset sales since 2010 including, in 2018, over $9 billion in capital raised by selling a 51% stake in the WestConnex motorway (itself partially funded from previous asset transactions).
Figure C6: Value of NSW Government Asset Transactions by Year
In turn, the use of asset recycling strategies has allowed states such as New South Wales and Victoria to dramatically increase infrastructure investment with only moderate increases in net debt. State budget projections indicate that even at the peak of the infrastructure investment wave, NSW State Government net debt as a share of the state economy will only reach around 9%, extremely low by international standards and well below other major states, including Queensland. By contrast, rising public investment in Queensland has been funded mainly through an increase in net debt, which is now expected to exceed 13% of the state economy.
Figure C6A: Public Sector Net Debt as a Share of Gross State Product
Net exports and public spending have been the largest drivers of growth over the last year, while sluggish consumption and the housing market downturn (which has weighed on residential construction and services related to housing turnover) have been sizeable drags. Looking ahead, it will take time for these headwinds to dissipate and, combined with recent domestic disasters (bushfires and drought) and emerging global risks (coronavirus) we expect the Australian economy to remain in the slow lane in 2019/20 (around or just under 2%), before a modest acceleration in 2020/21.
Residential construction activity has turned down sharply and the cycle has much further to run – we expect dwelling investment will be a large drag on GDP growth, and to a lesser extent employment growth, in 2019 and 2020. However, house prices are now rising strongly in Sydney and Melbourne (more gradually in Brisbane), and there are tentative signs that turnover is stabilising, which are expected to drive an upturn in dwelling approvals and commencements in late 2020 and into 2021.
The main sources of growth in the domestic economy will come from moderate growth in non-mining investment and a recovery in mining capital expenditure. Conditions remain conducive to a pickup in business investment – utilisation rates are high and monetary conditions are accommodative – but deteriorating confidence and uncertainty around the global outlook may give firms reason to pause. Mining investment has now troughed after a long decline, and the absence of the drag will support growth. Public demand continues to provide support to growth, with the NDIS rollout and increased education spending boosting government consumption. But at the national level, public investment activity stalled during 2019. Looking ahead, growth in public investment will be constrained as the NBN rollout winds down against a backdrop of a recovery in transport-oriented works. However, delays to the next round of road and rail projects could present further downside risks.
Net exports contributed +0.8 points to economic growth in 2018/19, with solid growth in merchandise export volumes expected despite an increasingly challenging global environment. This was underpinned by new LNG and oil capacity (as recently completed projects ramped up), and moderate increases in production in other key commodities. Growth in services exports, led by inbound international tourism and education, was also robust. However, services exports are now squarely facing high risks from the coronavirus pandemic and are expected to experience a negative shock in the first quarter of 2020 at least, despite support from a more competitive Australian dollar.
Over the long run, Australia’s economy is expected to outperform the majority of developed economies. Underpinning this will be favourable demographics, with positive net migration expected to sustain growth in the working age population at above 1% per annum until well into the 2040s.
Oxford Economics now estimates that world economic growth slowed to 2.8% in calendar 2019, down a full percentage point from its peak rate 2017, and marginally lower than the IMF’s estimate of 3.0% in October. The slowdown has covered both advanced and emerging markets and reflects both short and longer-term factors.
Figure C7: World Economic Growth, Annual Percent Change
Source: Oxford Economics
Short-term factors include the ending of the US fiscal boost, the wearing off of policy stimulus in the Eurozone and the impact of financial crises in emerging markets. But the slowdown also reflects a reversion to a (slower) trend rate of growth, due to several factors. One of these is weak productivity growth; aggregate total factor productivity (TFP) growth across the largest economies has been on average around 0.3 % per year lower in the last decade than in the previous ten years. The slowdown in productivity growth has also affected around 75% of economies.
Another factor is slow world trade growth. In 2019, world trade volumes have grown by just 0.6%, the slowest pace since 2009. Rising protectionism and a lack of multilateral trade liberalisation mean only a modest uptick ahead, with trade growth at 3-3.5% per year in the long run. In emerging markets, structurally lower capital inflows plus the effects of the debt build-up that followed the GFC will weigh on long-term growth. The ongoing deceleration in China is also a negative for world growth in the long term. A shift away from debt fuelled growth and weaker demographics mean we now expect China’s growth in the next decade to average 5.5% per year, well below the 9% rate seen in the decade to 2017.
While a mild recovery in world economic growth is anticipated in the early 2020s, growth is likely to only average around 3.4% per annum in the next decade, only modestly faster than the past decade (a period which included a very deep recession).