» By: Ali Abul Kheir, (Researcher in World Economics)
The world economyصs performance during the last decade of the twentieth century and first decade of the 21st century was great and invited unprecedented prosperity in commerce and capital movement but 2008 saw a dramatic change in the overall landscape. World trade declined, inter-state capital movement slowed down and trade policies retreated into isolationism.
Subsequently the world economy rebounded but turned once again in 2019 with growth declining to 2.5%, against 3.2% and 3.1% in 2017 1nd 2018 respectively. The International Monetary Fund (IMF) called this decline “grave” and attributed it to increasing trade barriers, which prompted more question marks about the future of trade.
World Growth Undermined by Trade War
The US-China trade war has relatively abated over the last few months as the two nations came to a soft agreement on 15 January 2020. But it is hard to think this war will totally disappear this year for several reasons. Most importantly, it is hard to settle controversial bilateral issues, including the Chinese currency which Washington believes is undervalued and Beijing naturally denies. It is worth-mentioning that the bilateral agreement kept 25% duty on $250 billion worth of Chinese products. Furthermore, President Trump’s “America First” ideology will surely continue to cast a shadow over America’s China policy if he wins the re-election.
Challenging Slowdown of Rising Economies
Another factor is the conspicuous decline in rising economies’ growth – a crucial point considering that these economies were the most powerful driving force for world growth for the last two decades. Their growth sometimes surpassed advanced economies’ by three times as in 2008 and between 2011 and 2014, as shown in Figure 2. With the relative weight of rising economies exceeding 56% of total global economy and relative weight of advanced economies dwindling to 44%, the decline of expected growth rate of these economies to 3.9% in 2020 – the lowest since 2002 – will cause world economy to lose momentum.
China’s economic slowdown could be the most influential factor affecting the world economy. It is, after all, the world’s second biggest economy with a GDP of $14.1 trillion (2019) representing 16.2% of global growth. Its growth stimulated global expansion over the past few years, reaching 9.5% per annum throughout the last four decades. So, slowing down to 5.8% in 2020 will add pressure on world growth.
Looming Global Debt Bubble
The third important factor expected to affect world growth in 2020 is rising global debt. Institute of Global Finance (IGF) estimates put international debt at $257 trillion in first quarter of 2020. If not checked, these debt levels can restrict governments’ ability to finance future projects, lowering growth across the world. The trajectory of some countries is particularly alarming. Individual debt volumes Argentina, Brazil, China, India, Indonesia, Malaysia, Mexico, South Africa, Turkey and Thailand in 2019 were twice as much as in 2009.
