Economic commentator for New Statesman, Grace Blakeley, gave an in-depth analysis on why the world isn’t ready for an economic downturn.
Blakeley points out a new global debt crisis, trade wars between great powers and a Chinese slowdown, as the standout threats to the global economy.
On top of this, The IMF cites that there will likely be a negative economic shock and has cut its world growth forecast for 2019 to 3.5 percent (compared to 3.9 percent in July 2018).
Also taken into account is monetary tightening as the second economic trend to worry about. The freeing effects of Quantitative Easing imposed by the Federal Reserve during the 2008 financial crisis will no longer work due to interest rates being increased around the world.
Furthermore, we have to take a look at the rising volatility in equity markets. As of right now, US stocks remain overvalued. The market capitalisation to GDP ratio could correct itself soon and it might not look pretty.
Growing protectionism around the world is another concern. This follows a decade of slowing global trade and investment flows, which some have termed “slowbalisation.” Trade flows have declined since 2008, from as much as 61 percent of global GDP in 2011 to 58 percent today.
Blakeley says that the main indicator of slowbalisation is capital flows (the cross-border movement of money for trade and investment). Rising financial instability, culminating in the 2008 crisis and growing inequality in large parts of the global north have led to a backlash against all forms of global economic integration.
As the threat of a global recession lingers, it seems that the U.S. economy could be hit from many angles.
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