Heading for another economic meltdown?


Rashid A Mughal

Those who has been monitoring the global
economic trends since last one year are ask
ing a big question: Are we heading for another economic meltdown in 2020 ? The answer seems to be YES as all the economic indicators-the ones we saw before crisis in 2008- are all shaping up now in exactly the same manner. To assess the correct scenario, we have to take the world’s No.1 economy i-e USA and see how it is performing. We have to take into account the views and assessment of the major financial institutions and rating agencies(majority of which are located in USA). Let’s start from the World Bank. In early 2018 the World Bank reported that US economy has lost its steam and is on its downward path. I.M.F and OECD also shared the same view.
Then came the issue of Trade wars- man made crisis which compounded the already fragile economy. The first confirmed indication of another recession in USA was the lowering of interest rates by Fed six months back. Another confirmation came last week when the Fed Chairman announced debt-buying(Bond buying) by government. If you recall, these were the very measures which the former Fed Chairman, Bernanke and Greenspan took to pull the American economy out of the worst recession from 2008 to 2012. Resorting to same measures give ample indication that the road to another financial crisis has just began and since US is the driving engine of the global economy, the rest of the train is bound to go where the engine goes.
China, the No.2 economy of the world and poised to take over US by 2044 as the No.1 global economy, is also experiencing some jolts, though not of the same magnitude. For the first time in 27 years the Chinese GDP growth rate has gone down to 6%. But China has conducted itself very prudently and carved out a significant role for itself not only in global economy but in Asia too. It has emerged as a regional power player and has enhanced it’s economic influence in South East Asia, Central Asia, near East and far East .It’s B & R initiative has paid rich dividends. The growth rate in Asia is still highest in the World and is in the ranges of 6-8% while in USA it is down to 2.5% and the story in Europe is not different where BREXIT has played havoc with economy. On 18 October,World Bank again revised its global growth rate estimates down by two points.
The global economy, after its worst fall and depression in 2008, which continued for next four years, started picking up in 2012.The depression wiped out trillions of dollars from the economy and threw the stock markets globally in complete chaos and also resulted in record bankruptcies and record unemployment through out the world. Many economists still believe that it was worst than the great depression of 1933.Advanced economies particularly USA, which is the driving engine of the world economy, along with Europe fell in deep crisis .Though the economies in Asia also felt the pinch but surprisingly almost all showed resilience. They did go down but relatively the shock was not as severe as felt in the west, which indicated the prowess, dexterity and stability in the Asian economies led by China. For years the Chinese economy enjoyed spectacular double digit-growth, perhaps the longest for any country. For over two decades ,the Chinese growth rate hovered around 12-15% and was the envy of many advanced countries ,including USA. The Chinese exports dominated the global markets and resulted in massive industrialization in the country and lowest un-employment rate. It pulled millions of its people out of poverty and brought affluence and riches to its nationals.
The world rode on marked recovery in the global economy after 2012 and came out of the worst depression. But since 2016 the things started to change. Radical policies, un-necessary trade wars,re-negotiating NAFTA and imposing tariffs/duties on Chinese and European goods by US, created an environment of mistrust and un-certainty through out the world. The quantitative easing policy of former Fed Chairmen ,Bernanke and Greenspan and bond-buying spree, had serious implications. Added to that was the record low interest rate for over seven years. It did pull the US economy out of woods but has created another environment of weakness and uncertainty in American economy. The roller-coaster ride of stock exchange is a clear indication that economy has become shaky. The tax cuts for the rich and longest shutdown of Government in December 2018 added substantially to the deficit which now stands close to $23 trillion.
The present atmosphere of confrontation and aggression is only adding to the uncertainty and fragility of the global economy. It is harming the advanced economies and emerging economies who are hardly hit by the shaky markets and uncertain future.
The world is $243 trillion (£188tn) in debt, according to the Institute of International Finance, pushing it very close to $244tn (£189tn), the highest on record. Around 40% of low-income countries are in ‘debt distress’ or are at high risk of falling into that category in the near future. Public debt in advanced economies is the highest as a proportion of GDP it has been since World War II. The UK’s debt to GDP ratio is around 97%, the fifth highest in the G20. The global economy is running on credit and economies around the world are having growth forecasts cut. ‘Large challenges loom for the global economy to prevent a second Great Depression,’ the IMF’s annual economic outlook said. Governor of The Bank Of England Mark Carney reported the weakest output since recession in 2008, the bank JP Morgan says a recession is coming in 2020, economist John Mauldin predicts that the 2020s will be the worst decade in American history and billionaire investor George Soros says we may be heading for another global financial crisis. Prediction after prediction from economic gurus is saying that 2020 will be the year when things really start happening.
— The writer is former DG (Emigration) and consultant ILO, IOM.