The 20s economy: hardly soaring, yet far from boring

Our economists take a closer look at the global economy, inflation and the nature of global trade over the coming years.

Following these events, we expect significantly slower economic growth over the coming years.

Our key economic views at a glance

  • UK: We expect significantly lower growth of around 1.0%. Data from the Office for National Statistics (ONS) suggests that productivity growth has slowed sharply from around 0.75% per year in the decade after the global financial crisis and around 2% during the so-called Great Moderation (the decade from 1998 to 2007) to 0.5% per year
  • Eurozone: While facing the same headwinds, the region may experience a less marked deterioration, with its trend GDP growth falling to around 1.25%, according to Eurostat – only slightly below its level in the 2010s. The region’s labour market is finally catching up with those of the US and UK, but productivity is still well behind the US.
  • US: Growth is likely to fall, primarily due to the labour force growing more slowly than in previous years. We forecast trend GDP growth in the US of around 1.8% over the coming years, primarily due to annual productivity gains of around 1.5%, according to the Bureau of Labor Statistics (BLS). 

Real GDP growth, annual averages (%)

Source: NatWest, Datastream

Higher underlying inflation pressures

Until recently, keeping inflation under control was relatively easy thanks to global factors such as sustained disinflation in global goods prices during the Great Moderation, and relatively subdued domestic demand during the years of austerity.

But global disinflation looks unlikely in the coming years, in what’s likely to be a more protectionist environment, with more stringent regulation (including green initiatives) and increasing onshoring and nearshoring. Domestic price pressures are also likely to remain persistently higher than before the pandemic.

In the US, for example, imported and domestically generated inflation have averaged 5.5% since the pandemic, according to the BLS. With the drivers of the run-up in imported inflation in recent years dissipating, the focus of those looking to tame US inflation will move to the labour market, where a sustained correction of imbalances will be needed to drive wage growth down.

Global goods inflation (% year-on-year)

Source: NatWest, IMF, Haver

Meanwhile, having surpassed 10% at the end of 2022, Eurozone inflation has dropped rapidly over the course of 2023 and in October it returned to 2% for the first time in more than two years, according to Eurostat. We expect inflation in the region to return to target around mid-2024. Factors such as protectionism are likely to keep underlying inflationary pressures higher in the euro area than they have been until recently, as will a more accommodative fiscal policy. But given inflation persistently undershot its 2% target before the pandemic, this might provide some benefits in Europe’s case.

Protectionism and fragmentation

Perhaps the biggest overarching theme for the 2020s economy is the return of protectionism. Trade patterns are shifting in response to the pandemic, geopolitical frictions, and more active industrial policy. Global trade volumes monitored by the International Monetary Fund (IMF) have faltered, with trade growth having slowed from an average of 5.9% per year during the Great Moderation and a still-respectable 3.6% in the post-global financial crisis / pre-pandemic period to a contraction of 3.2% over the past year.

Geopolitical and security considerations are the main drivers of rising barriers to trade in areas such as semiconductors. A new ‘green protectionism’ is also on the rise, with countries dishing out subsidies under the veil of accelerating the green transition – the Inflation Reduction Act in the US being the prime example. Industrial policies are being reformulated to strengthen supply chains through trends such as reshoring and nearshoring. And while tariffs have remained low, the number of trade interventions in the form of non-tariff measures has risen significantly since 2020. Trade concerns raised at World Trade Organization (WTO) committees have increased significantly.

In fact, the WTO has highlighted that trade is becoming increasingly fragmented and that there’s a tendency towards regional, rather than global, trading agreements. WTO data suggests the share of intra-regional trade is edging up, most notably in Asia, where it accounted for around 13% of trade during the Great Moderation but around 24% today.

Food protectionism has also made a comeback as governments try to provide relief from rising prices and maintain supplies for their domestic consumers. India, for example, has restricted exports of rice following earlier bans on wheat and sugar. Such actions risk driving up global food prices further, on top of the pressure on prices linked to the war in Ukraine.

This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes. It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in The Netherlands, authorised and supervised by De Nederlandsche Bank, the European Central Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, The Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, The Netherlands. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright © NatWest Markets Plc. All rights reserved.

scroll to top