United Nations has warned that weaker growth in both advanced and developing countries means the possibility of a global recession in 2020. This situation is indeed alarming. As President Trump intensifies his trade war with China, and as factories slow in major industrial nations, world commerce is deteriorating rapidly, a perilous development that threatens the health of the global economy. The dangers are clearly mounting, threatening to spread from the factory floor to households in many major economies.
A blowup over Brexit might not by itself cause a global recession, but it would certainly trigger a European one, which would then spill over to other economies. The conventional wisdom is that a hard Brexit would lead to a severe recession in the United Kingdom but not in Europe, because the UK is more reliant on trade with the EU than vice versa. This is naive. The euro zone is already suffering a sharp slowdown and is in the grip of a manufacturing recession.
Netherlands, Belgium, Ireland, and Germany are nearing a recession as they rely heavily on the UK export market. With euro zone business confidence already depressed as a result of Sino-American trade tensions, a chaotic Brexit would be the last straw. Head of the International Monetary Fund (IMF), Kristalina Georgieva has said that the global economy needs to be ready to cope with a fresh economic downturn. Unconventional monetary measures such as negative interest rates and creating money through quantitative easing remained the go to policies for addressing weaknesses in the global economy even though they have had a weak record since the financial crisis.
Several global trends are challenging governance and are changing the nature of power which will drive major consequences over the next five years. Within countries, tensions are rising because citizens are raising basic questions about what they can expect from their governments in a constantly changing world. A hobbled Europe, uncertainty about America’s role in the world, and weakened norms for conflict prevention and human rights create openings for China and Russia. China faces a daunting test with its political stability in the balance.
After three decades of historic economic growth and social change, Beijing, amid slower growth and the aftereffects of a debt binge is transitioning from an investment driven, export-based economy to one fueled by domestic consumption. Global economic order entails the redistribution of international responsibility as well as international power. Emerging powers, including China, should encourage a perspective that tolerates development across the world. Cultivation of such a core value will help emerging powers undertake international responsibilities proportionate to their current national strength and historical suffering from colonialism, and prevent them from being trusted with responsibilities and obligations beyond their capacity.
A string of countries are currently in recession or have recently suffered a contraction. Iran faces a blockade by the US and is unable to sell its oil or access the financial markets easily. Argentina is weighed down by enormous debts and Venezuela, despite holding the world’s largest oil reserves, is in political and economic crisis. The latest data for big Asian economies such as Japan and India also shows contracting manufacturing sectors both victims of gnawing uncertainty thanks to trade tensions.
And China, the world’s second-largest economy, posted its slowest growth in almost three decades in the second quarter, and it is watching exports decline despite a cheap currency. The World Trade Organization just downgraded its growth expectations for this year and next due to the wave of protectionism sweeping the globe.
The World Trade Organization has warned that the outbreak of tariff wars pose a threat to jobs and living standards as it slashed its forecast for trade growth during 2019. In this scenario High level talks between the US and China are due to resume in Washington this month in an attempt to settle a dispute in which the world’s two biggest economies have placed tariffs on more and more products. This may bring some positive change in the whole situation.
Writer is the Assistant Editor ‘Mélange int’l Magazine’, ‘The Asian Telegraph’ & Project Coordinator (COPAIR); a degree holder in communication & media sciences.