The Global Economy in 2014

GENEVA – At the dawn of a new year, the world is in the midst of several epic transitions. Economic growth patterns, the geopolitical landscape, the social contract that binds people together, and our planet’s ecosystem are all undergoing radical, simultaneous transformations, generating anxiety and, in many places, turmoil.

From an economic standpoint, we are entering an era of diminished expectations and increased uncertainty. In terms of growth, the world will have to live with less. To understand the implications of this, consider the following: If the global economy grew at its pre-crisis pace (more than 5% per year) for the foreseeable future, its size would double in less than 15 years; at 3%, doubling world GDP would take about 25 years.

This makes a significant difference to the speed at which wealth creation occurs, with profound effects on expectations. We ignore the power of compound growth to our detriment.

As for uncertainty, the world’s four largest economies are currently undergoing major transitions. The US is striving to boost growth in a fractured political environment. China is moving from a growth model based on investment and exports to one led by internal demand. Europe is struggling to preserve the integrity of its common currency while resolving a multitude of complex institutional issues. And Japan is trying to combat two decades of deflation with aggressive and unconventional monetary policies.