Global Economic Slowdown: Trends and Prospects
Since the 2007 financial crisis, the global growth in 2019 has reached its weakest point. According to the IMF, global growth is expected to be downgraded to 3 percent in 2019 compared to 3.6 percent in 2018. Other than the trade barriers and geopolitical tensions, this slowdown can be attributed to regional factors such as lack of reform policies, increasing debts and low productivity growth among many others. It has been a collation of various factors that have occurred simultaneously across the world.
“While growth in advanced economies is projected to slow from 2.2 percent in 2018 to 1.8 percent in 2019, growth in emerging economies is expected to tick down to 4.4 percent in 2019 from 4.5 percent in 2018.” (International Monetary Fund, 2018). The slowdown in the developing states account for more than half the percentage of the global slowdown. The economy of both factions has been affected by several common and contrasting factors. Lack of appropriate reforms within nations, improper monetary and fiscal policies have hurt nations across the world. “Government shutdown and lower fiscal spending have contributed to the economic slowdown in the United States.” (International Monetary Fund, 2018).
Among the emerging economies, India has been affected by policies such as demonetisation, implementation of GST and a lack of reforms.” The United Kingdom has also been affected by the prolonged political uncertainty regarding Brexit. Protests and geopolitical tensions are other factors that have especially affected emerging economies. While in France, the protests have added to its slowdown, protests have been rampant in Latin America and Hong Kong as well. Geopolitical tensions in West Asian countries like Turkey and Iran have specially added to the economic turmoil. In Turkey, the currency crisis guided by geopolitical tensions has aggravated the slowdown.
The geopolitical conflicts and its implication on trade have further downgraded the economy as the US imposed sanction on Iran. The effects of trade tensions have been cascaded throughout the world. This can be seen through the US-China trade war as the rate of world trade has fallen drastically. In China, deteriorating health standards have also added to economic demise. Climate has also had an impact as agricultural, industrial and loss of lives due to climate disasters especially in the developing nations have downgraded the economy. Both advanced and emerging countries have initiated several reforms to correct all failures and the economic growth is expected to pick up by next year according to IMF.
However, the level of certainty regarding a recession and further slowdown varies across economists. While the IMF has been mostly optimistic about the growth forecast, the World Bank has not. “IMF predicts that growth rate will increase from 3 to 3.4 percent in 2020 (Ziady, 2019) and the World Bank predicts a downgrade in growth rate to 2.7 percent in 2020.” (World Bank, 2019)” The UN has been less hopeful as well as the article by the Guardian suggests “Weaker growth in both advanced and developing countries means the possibility of a global recession in 2020 is a clear and present danger, the UN has warned.” (The Guardian, 2019). However, the likelihood of a global recession seems unlikely now as trade war tensions ease and countries revise their monetary and fiscal policies.
Among the emerging economies, India’s case is compelling as, despite the failure of previous economic policies, the government has an ambitious goal of a five trillion dollar economy. In order to achieve this, India would have to grow at 9 percent but currently, its growth rate has downgraded to 6.1 percent in 2019 according to the IMF. India is a highly valuable market and its growth rate is especially important for foreign investments. The decline in private consumption, low productivity in the industry and service sector as well as increasing current account deficit have contributed to this slowdown. The government has taken several measures to stabilise the situation by introducing income support schemes, cut in corporate tax rate and extending credit facilities.
This is expected to increase India’s growth rate but whether it would truly address the challenges regarding private consumption and weak investments is ambiguous. If the emerging economies slip, it changes the dynamics of the thrust of the global economy towards Asia. Considering these domestic factors behind the slowdown, countries need to reform their domestic policies before any collaboration beyond borders to address the economic challenges.
Even though every country has its own reasons for its economic slowdown, some parallels can be drawn in today’s globalised world. Trade needs to balance the surplus and deficit in countries, however, several negative externalities have impacts on the growth rate worldwide. The affected countries need to focus on job creation and public investment to stabilise and inject more money into the economy.
Every country needs to make unique adjustments to their policies as the factors that led to the downfall is different in every region, however, some overarching factors need to be confronted by countries together. Regardless of the development stage, political uncertainties, conflict, climate change and neglect of domestic issues have affected economies all over.
Are sanctions and raising tariffs the answer to political disagreements within countries? As seen through trade wars and sanctions, the negative impacts have been incurred by countries on both sides of political disagreements. Are protests the only answer to developing economic standards? The protests that have prolonged for so long, although held with the motive of demanding better economic standards, have added to the turmoil as seen in France. Has democracy in practice really empowered the citizens? In democracies often, the political parties play a blame game but what really matters is who takes responsibility in reforming the economic policies. Is a highly industrial and capitalist outlook to economic growth the answer to the overall economic advancement? When the goal is simply to expand economic power, several negative impacts can be felt as the domestic health standards and emission standards are ignored.
Climate change has inflicted a greater loss in countries and it is time for the government to vigorously take preventive action. While one of the reasons for Germany’s economic slowdown has been the change in the policy of auto-emission standards, these losses are short term. Considering the strength of the sector, the country is expected to overcome these challenges. Countries need to support each other in overcoming the threats of climate change. Less economical measures such as raising emission standards may need to be taken now for sustained economic growth. In essence, countries need to work together now more than ever.
Further negative impacts to the economy can be mitigated through a reduction in trade barriers and collaborating efforts towards a stronger economy. “If governments coordinated their fiscal stimulus, that could also generate positive spillovers of greater demand for not only domestic output but also exports of other countries. Such cooperation was seen in varying degrees a decade ago which helped to address the global financial crisis.” (Yueh, 2019). Countries need to keep their geopolitical tensions aside and must first address the economical threats together. There is an urgent need for policymakers to stimulate growth or countries would be continuing conflicts at their own peril.
- Global recession a serious danger in 2020, says UN. (2019). The Guardian.
- International Monetary Fund. (2018). World Economic Outlook: Growth Slowdown, Precarious Recovery. Washington, DC, April.
- The World Bank. (2019). Global Growth to Weaken to 2.6% in 2019, Substantial Risks Seen. Washington, DC.
- Yueh, L. (2019, November 11). Global Slowdown Worries. Forbes.
- Ziady, H. (2019, October 15). IMF sees weaker global economic recovery. US growth pegged at 2.1% in 2020. CNN Business.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of The Kootneeti Team