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Supply and demand constraints are dragging down the global economy, with growth expected to hover between 2.5 and 3.0% in 2016, according to the latest forecast analysis presented by IHS Global Insight at the World Economic Forum in Davos, Switzerland, this week.

On the supply side, IHS identifies a big slowdown in labour-force growth and by a sharp drop in productivity growth. While acknowledging mismeasurements in productivity statistics which do not record output in the knowledge-based, high-tech industries, Nariman Behravesh, chief economist at IHS, remains concerned about weak capital investment growth. “The biggest worry is the lack of investment, risk aversion of behalf of companies. This explains the dichotomy between the explosion of technologies and poor productivity: productivity is not being diffused, it’s not spreading. It is staying in Silicon Valley, in the high-tech centres.” Instead, he suggests that various sectors should be investing more in technologies such as robotics, 3D printing, and artificial intelligence, which have the potential to substantially change production processes and increase output.

The demand side is connected to anaemic growth in global trade. This has negatively affected export-led economies, with little hope for change in the next two years. Commodity markets and the economies of commodity-exporting countries, including Australia and Canada, have particularly felt the impact of a lower demand from China. The country is troubled by major structural problems, very high debt levels and excess industrial capacity. Behravesh tells GTR there is no painless way to solve those issues.“The big question is what is their tolerance for pain is, because this is going to be very painful and it already is, to some extent, because the heavy industries and mining are already in recession in China,” he says.

Behravesh also points to concerns over the reliability of the data coming from China. “By official estimates, our view is that growth will be 6.2-6.3% this year and next year. Unofficially, we expect more like 4 or 5%”. This kind of uncertainty over what exactly is going on in China is affecting the markets and the global economy, as the country has been a driver for growth, particularly in certain regions.

In terms of regional growth forecasts, IHS expects to see a continuation of the trends seen since 2012 over the next year or two, with developed economies doing a little better and most emerging markets continuing to struggle. One emerging economy is however on the right path. “India has done better than most in this environment,” says Behravesh. Having focused on developing a comparative advantage on services rather than manufacturing, India’s economy has been less vulnerable to the changes in global demand, unlike countries such as Brazil or Russia, which tend to rely on commodity exports. “The lesson here is that perhaps you want to focus more on services, on ways of supporting these technological changes. The world has changed and that means that countries need to think about slightly different development strategies,” explains Behravesh.

According to him, this global situation leaves banks on a rough patch. “They are not going to be eager to go into emerging markets because the business there is very poor these days. They will refocus on US, Europe, where the banking sector is looking a little bit better,” he says. “It is a tough environment for banks as well and I think they are being as risk-averse as anybody.”