It will come as no surprise that the global economy is in for a difficult few years, as the impacts of COVID-19, demographic shift, supply disruptions, the war in Ukraine and the conflict brewing in the middle east leave their mark.
On the positive side of the ledger, it appears earlier projections were overly pessimistic, with the overall 2023 outlook improving compared to April projections from earlier this year, although growth remains sluggish.
Kearney predicts average growth output of just 2.6% over the 2023–2027 forecast period.
The report cites China’s struggling economy, the threat of mounting global sovereign debt and contracting manufacturing output as the core reasons for slowing growth.
Interest rates and employment
Looking ahead, the report predicts weaker commodity prices, slowing growth, and eased supply chain pressures will lead to a decline in inflation across most economies.
Despite initial concerns, inflation rates appear to be peaking, and they are projected to return to target levels by the end of 2024 or early 2025.
Unemployment is also predicted to decrease over the 2023-2027 period, averaging about 6.5% and peaking in 2024.
Shifting workforce demographics heavily affected by ageing populations and low birth rates are threatening markets, specifically China, South Korea, and Italy, and represent a marked risk to continued economic growth.
The report points to Africa’s growing labour force as a potential fix (which is likely to be a short-term solution at best) and hopes technology and automation will balance labour markets.
Australia to form part of the world’s growth engine
Kearney’s report points to Asia and the South Pacific as a major region of growth looking ahead.
Output growth in our local region is projected to average 4.1% through to 2027, down slight from a 4.1% prediction in the April report but still a much stronger showing than the global economy at large.
Australia has seen a slight improvement in average growth for the 2023 to 2027 forecast period, up 0.1% to 2.7%. We also rank third in average annual GDP growth among Asia and the South Pacific’s largest regional economies, behind India and China.
Unsurprisingly, India and China will be strong contributors to that growth, with India expected to enjoy a growth rate of 7% and China maintaining a steady output rate of 4.7% despite a slowing economy.
Other fast-growing countries in Southeast Asia, such as Vietnam, Indonesia, and Malaysia, maintain positive prospects but may be bogged down by the threat of sovereign debt default.
Five factors to watch for
The report also highlighted the five key factors likely to shape the economic outlook over the next five years, having an outsized impact on the economy.
These include:
- Geopolitical turbulence creating further fragmentation and conflict;
- The Role of climate change and extreme weather;
- Headwinds resulting from current inflationary trajectory;
- Labor market imbalances due to ageing populations and productivity challenges, and;
- The role of technology innovation and accessibility.
“Strategic businesses will continue to invest in new ventures, diversify markets, and pursue innovative solutions to contend with economic volatility,” adds Terry Toland, manager of thought leadership at the Global Business Policy Council and co-author of the study.
“In parallel, they will develop risk preparedness programs. Such efforts can mitigate the impact of the external shocks that are all but certain to shape the economic outlook.”