MainStreet Macro: The path between global and local growth

Last week my attention turned to my old stomping ground, Washington, D.C., where I worked for several years. 

One of the city’s most closely watched spring events – after the National Cherry Blossom Festival – is the annual spring meeting of the World Bank and International Monetary Fund. Central bankers, finance ministers, company executives, and academics from across the globe descend on D.C. to discuss front-burner economic and geopolitical issues.

An annual highlight of the confab is the IMF World Economic Outlook, which sets the tone for the week. This forecast frames global and national economic growth, discusses opportunities to accelerate it, and highlights risks that could lead to a global slowdown.  

From Main Street’s perspective, these high-minded discussions might seem academic and irrelevant to down-home challenges such as inflation, rising interest rates, and tight labor markets.

Yet the path between global and local growth is shorter than you might think. The World Economic Outlook was rather gloomy, while facts close to home still give us reason for hope.

Here are at least two takeaways from the IMF global outlook that have resonance on Main Street.

Global growth is expected to slow, then rebound

The IMF predicts global economic growth will bottom out in 2023, falling from 3.4 percent in 2022 to 2.8 percent this year, then rising to 3 percent in 2024. But each country’s outlook is different.

India and China are projected to be the fastest-growing global economies of 2023, expanding at a rate of 5.9 percent and 5.2 percent respectively. 

As a group, wealthier economies, including the U.S., Europe, the United Kingdom, Japan and Canada, are expected to slump, decelerating to 1.3 percent growth this year, less than half the pace of the 2.7 percent recorded in 2022.

The U.S. economy, the largest in the world, is forecast to have an even bigger slowdown. The IMF predicts that U.S. growth will continue to decelerate, falling from 2.6 percent in 2022 to 1.6 percent in 2023, then to only 1.1 percent in 2024.

The IMF’s medium-term growth estimate is the lowest on record

Not only does the IMF try to capture growth trends in the near term, its economists also look to the horizon to produce a five-year outlook. And while Washington, D.C. is still rosy with blossoms in bloom, the IMF’s five-year outlook certainly isn’t.

The fund is projecting 3 percent global growth in 2028, a significant drop from the 4.6 percent medium-term outlook in 2010.

The fund’s projections have been falling steadily for multiple reasons. Fast-growing economies such as China and South Korea, for example, are maturing, which leads to naturally occurring slower growth, for example.

Then there’s the pandemic, inflation, higher interest rates, and powerful geopolitical shocks like the war in Ukraine.

It can be difficult to forecast what effect such global events have on the world economy.

But some of the IMF’s expectations are highly specific and delivered with more certainty. Global inflation, for example, likely will stay above pre-pandemic levels through 2025, according to the fund, a forecast that will reverberate across international borders.

In the U.S., last week’s read on consumer prices highlighted inflation’s stickiness. 

Yes, headline inflation fell to an annualized 5 percent in March from 6 percent in February, the smallest year-over-year increase since May 2021.

But when we strip out purchases that tend toward wide price swings, such as food and energy, core inflation was up, rising to 5.6 percent in March from a year earlier, higher than the 5.5 percent growth recorded in February.

My Take

Economic forecasts are informed by data and economic models, but they’re rarely perfect. And the bigger forecasts sometimes can’t always capture the on-the-ground dynamics of national and local economies.

What we do know for sure is that the economy and the economic outlook can change quickly.

An important driver of that change is Main Street. Small employers make up roughly 90 percent of all businesses worldwide and employ half the global workforce, according to the World Bank.

ADP’s March National Employment Report showed that most new jobs were created by small employers. And those same small businesses continue to tell us they need qualified workers. 

Main Street’s push to hire in the face of a less-than-rosy global forecast comes as no surprise. Don’t forget that small employers were the first to recover after the pandemic downturn. These businesses are, above all, resilient.

Consumers, too, are a big player on Main Street and globally, driving the bulk of economic growth. They’ve been remarkably resilient, too.

Retail sales, an indicator of U.S. consumer health, took a tumble in March, falling for the second month. That looks like bad news, and there’s no doubt inflation’s sting is taking its toll. But despite the dip, consumer spending remains strong enough to support U.S. growth in the first quarter of 2023. Every nation has a proverbial Main Street, a place where consumers, small proprietors, and workers form the foundation of the real economy. Main Streets, wherever they are, are a key driver for global and local growth. And for now, they’re proving resilient, as always.