In 2008, when the global recession hit most countries around the planet, there were many warning signs that most economists missed which resulted in catastrophic economic conditions for many. This recession that lasted several quarters resulted in many businesses closing down or going bankrupt and millions of people all over the world lost their jobs. It has been over 10 years of steady growth since the global recession of 2008 and a slowdown is likely in the next few years. There are many warning signs all over the globe this year that suggest that a global recession looks very likely in the next year because of major problems in the global economy. The following are some of the reasons why world economies need to prepare for the global recession:
The US-China Trade War
The United States is currently led by Donald Trump who has an “America first policy” and has gone into a trade war with many countries like China, India, and the European Union and also with countries like Mexico and Canada. There has been a particular focus on putting tariffs on China because of the administration’s belief that China has been manipulating their currency and also indulging in unfair trade practices for decades. China has responded by putting tariffs on American goods and this escalating trade war between the two countries is hurting business in both countries and causing markets to panic. There has been a downturn in demand and trade between the world’s two largest economies because of the trade war and this is a sign of recessionary troubles for the global economy.
Slowing Growth in the United States
When there was the much-anticipated tax break there was a boost in the economy and the economy then received a sugar high for a few quarters and the interest rates were raised by the Federal Reserve in the US. Now the economy is stuck with higher borrowing costs, tariff wars with major countries, bad farming and manufacturing data, and fears of layoffs in many sectors within the economy. The economy in the US is still growing, but at a smaller pace, thanks to the consumer spending data that is still strong but there are major worrying signs with this economy. American economy is the largest economy in the world and the uncertainty and fears of a recession in this economy have a catastrophic impact on the global economy.
In 2016, the British people decided that it was time to leave the European Union and they have been trying to leave the EU ever since then and the divorce has not been easy. With or without a deal it is going to be extremely difficult to leave the EU for the UK with investment and growth, is likely to reduce further in this country. There will be stiff import tariffs for the UK without a good trade deal with the EU and even short term shortage of supplies. Every sector in the British economy is likely to suffer from Brexit and this will also have an impact on the economy of the entire EU. UK has one of the largest economies in the world and leaving the EU without a deal will result in a negative impact of the global economy.
Many Countries in Recession Globally
Germany is one of the largest countries in the world and it is currently on the edge of a recession. The growth in Germany shrank in the last quarter and there are bleak hopes of an immediate turnaround because trade has slowed down with China and there is uncertainty with Brexit. Many other countries all over the world are facing slowdown and recession. Iran is facing sanctions and blockades, Venezuela is suffering from a major economic crisis, Argentina has a lot of debt, and places like Turkey and South Africa have slowing economies. Many other countries have warning signs of impending financial crises.
Uncertainty in World Financial Markets
A brief study of major market indices like the Dow Jones, FTSE, Hang Seng, and Nikkei over the last few months will help people understand the jitteriness that is currently going on in the global market. There have been wild swings in the global markets over the last few months and there is jitteriness in the bond markets as well. The inverted yield curve in the bond yields happened this year and this historically has only happened before a recession and this further added uncertainty in the global markets. The US Fed has not yet cut interest rates and there are very few monetary policies and stimulus options available with the government in the US to stop a recession. Currently, the global economy is standing firm because of consumer confidence and a few sectors but there is a sense in the global financial markets that there might be a downturn soon.
Problems with the Chinese Economy
China has one of the largest economies in the world and has steadily grown at a rapid rate over the last few decades. The Chinese economy is still growing but the rate at which it is growing has substantially fallen in the last few years. There are countries where manufacturing is cheaper than China and now the slowdown has been coupled with a major debt crisis in the country. There are many individuals and companies in China that have borrowed heavily which are in large scale debt. When authorities in China try to control the pace at which companies and individuals are borrowing in China, the global economy and market shiver and China let companies and private individuals borrow more freely again. With industrial output and demand in China slowing down this crisis is likely to expand and cause severe problems for the global economy.
Governments, investors, economists and major economic experts all over the world are worried and many administrations are already making policy changes to help them deal with any downturn that can happen in the global economy. Global recession can be very bad for the rich and it can be disastrous for the poor especially those who might lose their jobs if a global recession takes place in the near future.