Global Economy Gears for Major Slowdown

The impact of the global financial crisis in 2008 continues to reverberate around the world as countries adjust economic projections year after year. A pattern of downward forecasts causes concerns about the world economy as leaders search for a reversal of the trend. The International Monetary Fund (IMF) cites subdued demand as a cause of diminished financial prospects. The cumulative effect of lagging economies in individual countries may point to the reoccurrence of a global recession.

Considering Chinese Influence

The growth of the Chinese economy has astonished the world in recent decades as its gross domestic product (GDP) achieved a rank second only to the United States. China’s policy of capital controls restricts investment elsewhere. Consequently, while the middle class in China has expanded, it has limited opportunities for investing newfound wealth elsewhere. The Chinese stock market offers a potential avenue to financial gain as does real estate, but both options have become extremely expensive.The boom in real estate led to the creation of a glut of homes and a collapse of the housing market. The stock markets underwent a correction, and the government chose extraordinary remedies such as curbs on short selling and circuit breakers to halt trading on Chinese stock exchanges. The IMF expects the slowdown in China to affect global growth through 2017.

Examining European Conditions

The IMF and the European Central Bank have rescued Greece, Spain, Portugal and Italy with quantitative easing and instituted austerity measures. Populations of the affected nations have objected to the imposition of limits on benefits that they have traditionally received. For example, many Greeks drew retirement pensions after age 50. Reforms now set the statutory age for retirement closer to 70, but lender nations have resented the cost of bailouts to their economies. Effects of austerity measures may reduce demand for goods and restrict the flow of revenue that economies need for reducing indebtedness.

Observing Economic Performance in the United States

The IMF predicts the 2016 global economy to rise to 3.6 percent adjusted for inflation, according to Forbes, and the economic picture in the United States seems promising. An increase in the GDP at the end of 2015 may indicate that the US economy’s response to the global slowdown is better than expected, according to The Guardian. However, risks in the United States still tilt downward along with other world economies. A sell-off in the global stock market and a strong dollar have tightened financial market conditions.

Comparing Current Conditions to 2008

The Guardian cited remarks from billionaire George Soros that indicate conditions are distinctly different between 2008 and now. The US sub-prime housing market figured prominently in the financial crisis then, but China’s slowdown provides the primary impetus today. Excessive leverage within the financial markets created a condition that does not exist now. Financial experts contend that quantitative easing in Europe may have created the appearance of prosperity without justification. Fundamental economic problems still exist that require analysis and restructuring that can lead to creating growth through the diversity of job opportunities.

Balancing the Forecasts

A review of economic forecasts by Forbes predicts moderate growth in Europe at about 1.9 percent GDP, with most countries in a decent position. In the North American continent, Canada’s growth progresses at a slower rate than the United States that benefits from an expansion in housing. Mexico’s low rate of inflation and unemployment put the country in a position to enjoy substantial economic growth. Conditions in Asia seem difficult to predict, even though the government reports a GDP growth rate of 6.9 percent. Japan’s economy appears to have reached recession status, but unemployment remains low. India has low commodity prices and steady consumer spending that contributes to substantial expansion.

Many of the countries on the South American and African continents depend on commodities, and the outlook for them is not desirable. Prices have fallen since a peak in 2011, resulting in setbacks in petroleum, agriculture and mining. Forbes expects a slower rate of growth in the global economy than the projections of the IMF, based primarily on the influence of Asian countries. The projection resembles the growth pattern in recent years with an expectation of more progress in Europe but less in China and the countries whose economies depend on commodities. For more information regarding this topic, visit us at the Personal Money Store.

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