Weaker growth seen for two-thirds of world’s top cities as global slowdown bites

By Oxford Economics

/ Global Cities Outlook report, December 2019 |

December 13, 2019 11:11 AM SGT

Of the world’s 900 major cities, 586 are likely to experience slower annual growth in 2020-2021 than in the previous five years. This according to the Global Cities Outlook report for December by global advisory firm Oxford Economics which examines the prospects of the 900 most important city economies around the world.

London’s financial services sector has been struggling for some time and the business services sector has almost certainly been hit by the global trade slowdow (Photo: Shutterstock)

The breakdown is that 76 out of the top 98 American cities will see slower GDP growth in 2020-21 than in 2015-19. For Europe, this will be 156 of its 232 top cities while the numbers are 41 out of 104 top cities for Latin America and 45 out of 131 cities for the Middle East and Africa. As for Mainland China, no less than 146 of 150 of its cities will see slower growth. But so will 122 of the 185 cities in Asia.

Oxford Economics says this is because the current slowdown in world trade is hurting manufacturers. Many of the world’s cities have large manufacturing sectors, and hence are directly affected by slower global trade growth. For instance, in Barcelona, manufacturing accounts for 19% of the city’s economy. In Taipei, the figure is 23% while in Ho Chi Minh City, it is 38%.

The slowdown in world trade also directly impacts demand for services such as travel and insurance which tend to be concentrated in cities and suffer when manufacturing suffers. Plus, there is an indirect impact on consumer spending within cities when wages are cut or unemployment rises.

In Europe, another reason for the slowdown is that a number of cities are host to large car plants and hence affected by the sector’s problems. These include adapting to new emission standards, the long-term shift in consumer demand towards electric and hybrid vehicles, and the declining trend in car ownership. Take Stuttgart for example, a city with a high reliance on the automotive sector. The forecast is for it to grow by only 1.1% a year in 2020-21, after 2.1% a year in the previous five years.

But with 900 cities in the forecast dataset, there are many that are affected by special factors. Among them is the Dutch city of Groningen, the second worst-performer and behind Malabo in Equatorial Guinea. Having been hugely dependent on its natural gas field which is the 10th largest in the world, Groningen is set to be hard hit by a government enforced shutdown of production due to earthquake concerns and the plan is for the facility to cease production by 2022.

Source: Oxford Economics - Cities & Regions Service

London losing some of its shine

Meanwhile, nine out of the world’s 10 largest cities are projected to grow slower in 2020-21 compared to 2018-19. London is the exception as it is expected to recover slightly from its sub-standard growth of 1.5% a year in 2018-2019, to 2.1% a year in 2020-21.

The UK capital’s growth rate is expected to increase from outpacing only Tokyo and Osaka-Kyoto over the last two years, to trailing only San Francisco (2.4%) and Dallas (2.2%) in the next two years (See Table 1).

In London, the slowdown has been particularly striking, from a peak of 3.8% growth in 2016 to just 1.4% in 2019, with both consumer spending and business investment showing lacklustre growth. This places London behind cities that it previously outperformed, such as Stockholm and Vienna whose economies have both grown by 1.7% in 2019, Berlin at 2.0%, and on par at 1.5% with Paris, which has traditionally been easily outpaced by the UK capital.

The beginning of London’s slowdown coincided with the UK’s decision to leave the EU, and Brexit has clearly created much uncertainty. But there have been other factors at work. London’s productivity growth pre-recession was higher compared to the capital cities of France, Spain and Germany, but has since slowed to the same rate.

To be sure, London’s financial services sector has been struggling for some time and its business services sector has almost certainly been hit by the global trade slowdown. This is the same in a few other European cities such as Hamburg and, to some extent, Amsterdam. Nevertheless, for 2020-21, London looks set to do a little better.

In the first decade of the century, Asia was dominated by cities in China, with the largest four metropolitan areas – Shenzhen, Beijing, Guangzhou and Shanghai – among many that grew by more than 10% a year. However, growth rates in these four cities have slowed to 6-7% over the last two years, in line with the growth rates of several other Asian cities, including Delhi (6.9%), Mumbai (6.5%) and Kuala Lumpur (6.0%).

Shanghai, ranked 11th largest city in the world in terms of GDP, is projected to be the fifth largest by 2035 (Photo: Shutterstock)

Indian cities set to soar

Meanwhile, cities in India have benefitted economically from strong population growth. From 2001 to 2019, the aggregate population of Indian cities grew by 2.1% per year compared to 0.7% per year for the aggregate population of Chinese cities. In addition, the IT, communications and business services sectors of Delhi and Mumbai have gained increasing prominence, as has Bangalore. Indeed, the latter has been growing at the fastest rate of the three with GDP rising 11.8% a year in 2014-17 and 8.4% a year in 2018-19.

However, they are still not the fastest-growing major Asian cities over the last two years.

That honour goes to Ho Chi Minh City and Phnom Penh which grew at 9.5% and 8.2% a year in 2018-19. Ho Chi Minh City is dominated by manufacturing. Being an inexpensive place, the city has received an increasing amount of foreign direct investment as companies have relocated there, not least from China. Much the same is true of Phnom Penh, which has also gained from population growth of 3.1% a year since 2000, while job creation has grown at a very impressive 7.8% a year.

Admittedly, the pace of Phnom Penh’s employment growth has slowed somewhat through the last 20 years. In 2018-19, the growth was just 3.5%, but given the ratio of employment to population increased from 27% in 2000 to 58% this year, this makes it harder for companies to find available labour than in the early part of this century. Nevertheless, overall GDP growth has still been impressive.

Tokyo (pictured), along with New York, Los Angeles and London, are expected to retain their rankings among the world’s largest cities in 2035 (Photo: Shutterstock)

Sluggish growth in mature Asian cities

Elsewhere in Asia, the narrative of very sluggish growth in Japan continues amid an ageing population and slower income growth. This produces downward pressure on the economy which has not been offset by significant-enough productivity gains.

Other cities in advanced economies such as Seoul, Singapore and Hong Kong have also struggled over the last two years with GDP growth of just 2.4%, 1.8% and 1.4% respectively. All these are also heavily affected by the China-US trade war and rising protectionism. Hong Kong, of course, also saw huge and unprecedented political unrest this year.

Of the largest two Australian cities, Melbourne has grown faster than Sydney over the two decades at 3.1% a year against 2.5%. In Sydney there has recently been significant investment in transport infrastructure, but higher costs and greater congestion levels have enabled Melbourne to catch up in economic terms, amid the capital of Victoria’s transition from being historically the more provincial city to a more dynamic and ‘hip’ urban centre to rival Sydney.

For 2020 and 2021, Asia’s emerging-economy cities should continue to outpace advanced economy cities. The strongest performers predicted are Bangalore (9.9%) and Ho Chi Minh City (8.4%), followed by Indian and then Chinese cities at around 6% a year. The strongest growth among the advanced economies will be from Kuala Lumpur (4.8%).

Source: Oxford Economics - Cities & Regions Service

Top growth cities of the future

Over the next 15 years, the economies of Asian cities, on aggregate, is expected to continue to outperform that of European and North American cities such that by 2035, their total GDP will overtake that of European and North American cities combined. A large part of it boils down to the growth of Chinese cities — which although slower than in the past — will still be strong enough that their combined GDP will overtake that of North American cities by 2035.

That said, overall growth in Indian cities are forecast to be stronger than their counterparts in China, partly due to stronger population growth. However, the GDP levels of Indian cities are generally much lower than Chinese cities, so India’s overall contribution to the aggregate total of Asian cities will still be smaller in absolute terms than its neighbour’s. That is despite India featuring in all but two of the 10 fastest-growing cities in GDP terms.

Japan’s cities, although slow-growing, will collectively make a major contribution to the overall scale of Asia’s cities in 2035. Afterall, Tokyo will still be the second largest city in the world in terms of GDP – as it is today – as well as having the largest population.

Of the 10 largest cities in the world today, six will still be in the top 10 by GDP in 2035. The top four – New York, Tokyo, Los Angeles, and London – will all retain their places.

The new entrants will be four Chinese cities – Shanghai, Beijing, Guangzhou and Shenzhen – all of which are currently in the top 20.

Those that will slip out of the top 10 by 2035 will be Osaka, San Francisco, Dallas and Washington – although all will stay within the top 16 (see Table 2).