What are biggest risks to the global economy in 2019?

In this global economy, no jobs are safe. High-speed Internet connections and low-cost, skilled labor overseas are an explosive combination. – Bob Taft

Global economic growth though expected to be 2.6 % in 2019 and at 2.7 % in 2020 do not provide the complete picture.  Many factors are affecting the global economy in 2019 to bring it to the weakest this year since its decade-old financial crisis in 2008. The confluence of short term risks is clouding the global economy to cause significant damage to long-term development prospects.  Also, the economic growth of developing countries are predicted to go down below the four year low of 4 % in 2019 and 4.6 % in 2020, have also witnessed a decline in their per capita income in 2018.

As per the World Economic Situation and Prospects 2019, the steady pace of the global economy expansion covers the increase of the downside risks. It could potentially exacerbate development challenges in many parts of the world. It points out the risks as an escalation of trade disputes, an abrupt tightening of global financial conditions and also the intensifying climate risks.  The United Nations Secretary-General is also of the same opinion and raises concern over the sustainability of global economic growth in the face of rising financial, social, and environmental risks.

Global economy progress uneven across many regions:

Global economic progress is uneven across many regions. The strong global headline figures reflect only the economic activity of the core industrial and urban regions. It fails to consider the economic activity of the peripheral and rural regions. Volatile commodity prices remain susceptible though there is gradual recovering in the growth of commodity-exporting countries. The steep drop of the commodity prices in 2014 and 2015 still weighs heavily on the fiscal and external balances of these regions. Also, it has left them with higher levels of debt.

World Bank predicts the risks of global economy

As per June 2019 Global Economic Prospects of the World Bank, the following will affect the outlook of the global economy:

• Heightened trade war tensions
• Subdued investments
• Structural problems that misallocate or discourage investments

The slowdown rates of the global economy

• US growth forecast is to ease at 2.5 % in 2019 with a steep fall to 1.7 % in 2020 due to weaker exports and subdued investment
• Due to domestic demand activity and softness in trade the Euro Area growth projections hover around 1.4 % in 2020 to 2021 despite continued support from monetary policy
• In the case of the emerging market and developing economies, it is projected to fall to a four year low of below 4 % this year. However, it is forecast to recover to 4.6% in 2020.

These forecasts of developed and developing countries only heighten the plight of the poorest countries in the world. They are facing the most daunting challenges due to their fragility, geographic isolation, and entrenched poverty.  World Bank Vice President says that unless they fasten growth trajectory, it will be impossible to reach the goal of lowering the extreme poverty under 3 % by 2020.

The biggest risks to the global economy in 2019:

1. Trade wars intensify in 2019:

The global threat of world war between the US and Russia of the 19th century has now turned into the trade war between the US and China. US President Donald Trump’s trade war against China has shaken its confidence. With a significant slowdown already unfolding in China for the past decade, it is reeling down further under the trade war pressure. The GDP of China, which was 10.61 % in 2010, has nosedived to 6.2 % as of July 2019.  It’s the transition from an export and investment-led growth to more sustainable domestic consumption-led growth. The long term economic picture is also gloom for China, which highly contributes to the global economy.

2. Subdued Investments:

Subdued investments across developing countries are another major concern for the global economy. It has slowed down the pace of these economies in catching up with the advanced economies. Besides, the productivity of these slower economy countries is dragging due to their capital deepening slowing down.

3. Brexit Blues:

The exit of Britain from Brexit has not only affected it but also the global economy. The signs of it is evident from the contraction if its second quarter earnings in 2019 which shrunk by 0.2 % from its previous quarter for the first time in seven years.

4. Geopolitical uncertainty:

In its 2019 Global risks report, EIU or the Economist Intelligence Unit has said that the geopolitical uncertainty is sure on the rise and will remain a source of significant risk. It also says the rise of the so-called populist leaders is far from over.  It includes figures like US President Trump, India’s Modi, Brazil’s President Bosonaro, among many others.  It says that these populist leaders excel at the kind of rhetoric that suits them well with supporters at home turf.  But it causes international tensions that can have a substantial impact on trade and destabilize finance markets and the oil sector.  It is also one of the main reasons that provoked trade wars between the US and China.

5. Climate changes:

The not much known climatic changes are fast eating into the global economy.  In the past decade, the world has observed an increasing number of extreme weather events. More than half of it has been attributed to climate change. The low and lower-middle-income countries bear the brunt of the human cost of such disasters. It causes severe damage to vital infrastructure due to the risk of displacement of large communities.  Many countries on the shores of Indian, Caribbean, and Pacific Oceans are particularly exposed to climate risks in the last few years.

The other major risks to the global economy in 2019 are the interest rates, increasing debts, and an abrupt tightening of global financing conditions. Countries must make significant structural reforms to improve the business climate and attract investments.  Only on the reviving of the global economy, the poorest countries could be helped for a better living.

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