Inequality, low wages weaken global growth, says IMF

AFP, WASHINGTON: A hollowing out of the middle class in advanced economies like the US, amid weak wage growth and rising inequality, is holding back global growth, a senior IMF official said Monday.

Tao Zhang, the International Monetary Fund’s deputy managing director, said the fund’s economic growth forecasts due out next month, will show little change in the global recovery that is still relatively slow.

“Nearly a decade after the global financial crisis, the global economy is getting better,” Zhang told a gathering of business economists in Cleveland, Ohio.

The IMF in July forecast global economic growth of 3.5 per cent this year, up from 3.2 per cent last year, and accelerating to 3.6 per cent in 2018.

While this is “good news,” a 3.5 per cent global growth rate is weak in historical terms, he said.

Zhang pointed to slowing productivity growth, income inequality and low wage growth and weak inflation as culprits.

The IMF forecast US growth of 2.1 per cent this year and in 2018, up from 1.6 per cent in 2016. While that would constitute the second-longest expansion since 1850 it is well below President Donald Trump’s goal of three per cent.

More than half of US households now have lower incomes, when accounting for inflation, than they did in 2000, Zhang said.

And around two-thirds of households leaving the middle-class are falling into the bottom segment of income distribution, earning less than half the US median income, he added.

That income inequality is weighing on overall global consumption, reducing it by about 3.5 per cent over the last 15 years, he said.

“This represents an important headwind to aggregate demand,” suggesting these developments have driven the recent rise of protectionism and nationalism in Western countries.

Inequality, low wages weaken global growth, says IMF

AFP, WASHINGTON: A hollowing out of the middle class in advanced economies like the US, amid weak wage growth and rising inequality, is holding back global growth, a senior IMF official said Monday. Tao Zhang, the International Monetary Funds deputy managing director, said the funds economic growth forecasts due out next month, will show little change in the global recovery that is still relatively slow. Nearly a decade after the global financial crisis, the global economy is getting better, Zhang told a gathering of business economists in Cleveland, Ohio. The IMF in July forecast global economic growth of 3.5 per cent this year, up from 3.2 per cent last year, and accelerating to 3.6 per cent in 2018. While this is good news, a 3.5 per cent global growth rate is weak in historical terms, he said. Zhang pointed to slowing productivity growth, income inequality and low wage growth and weak inflation as culprits. The IMF forecast US growth of 2.1 per cent this year and in 2018, up from 1.6 per cent in 2016. While that would constitute the second-longest expansion since 1850 it is well below President Donald Trumps goal of three per cent. More than half of US households now have lower incomes, when accounting for inflation, than they did in 2000, Zhang said. And around two-thirds of households leaving the middle-class are falling into the bottom segment of income distribution, earning less than half the US median income, he added. That income inequality is weighing on overall global consumption, reducing it by about 3.5 per cent over the last 15 years, he said. This represents an important headwind to aggregate demand, suggesting these developments have driven the recent rise of protectionism and nationalism in Western countries.