How is the World Economy Today?
The global economy is in a precarious position. With uncertainty in political stability, economic growth and trading conditions, it has become increasingly important to understand how the world economy is changing and what the impacts of these changes may be. Here, we take a look at the current state of the world economy and what this could mean for the future.
GDP Growth
According to the World Bank’s 2020 Global Economic Prospects Report, global Gross Domestic Product (GDP) growth remained weak in 2019, with global GDP increasing by an estimated 2.9%. This was lower than the 3.6% recorded in 2018, and is the slowest rate of growth since the financial crisis of 2009.
The US, after several quarters of strong growth, saw GDP expand by 2.3% in the fourth quarter of 2019, which was the weakest growth rate since 2016. The Euro Area posted a 1.2% expansion in the fourth quarter of 2019, while China’s GDP expanded 6.1%.
The IMF has forecast that the global economy will grow by 3.3% in 2020, a modest improvement on 2019’s figures, but still much lower than the trend rate of 3.6%. The Fund has attributed this sluggish growth to a combination of factors, including trade tensions and political uncertainty.
Unemployment
The global job market remains relatively mixed. The IMF estimates that the global unemployment rate is currently 5.9%, up from 5.6% in 2018. Unemployed levels were highest in Europe and Central Asia, but remain high across all regions.
The US unemployment rate is 3.6%, down from 4.0% in 2018. The Euro Area recorded an unemployment rate of 7.4%, the lowest level since 2008. China, however, saw a rise in the unemployment rate from 3.8% in 2018 to 5.2% in 2019.
Trade
Trade volumes grew by just 1.2% in 2019, down from their 2.6% growth in 2018. This was largely the result of a slowdown in trade between the US and China, with US imports from China falling 25% in 2019. Global services exports growth also slowed as a result of trade tensions, declining by 0.2% in 2019 after growing 3.3% in 2018.
The IMF has predicted that global trade will recover and grow by 3.0% in 2020, but warns that the outlook is still uncertain and subject to risks related to the world economy.
Monetary and Fiscal Policies
In response to slower growth, central banks around the world have implemented a range of monetary policies, such as quantitative easing and rate cuts, to stimulate economic activity. Many governments have also implemented expansionary fiscal policies, such as tax cuts, spending increases and subsidies.
These policies are intended to provide a short-term boost to the economic situation and help stimulate growth. However, central banks and governments will continue to monitor the economic situation closely as there is little room for further stimulus measures if economic activity continues to slow.
Impact of Political Uncertainty
The world economy is facing a number of political risks and uncertainties. These include Brexit, US-China trade tensions, increasing global populism and instability in the Middle East.
These risks have the potential to have a major impact on the world economy. For example, trade tensions between the US and China have already had an impact on businesses as well as consumer and investor confidence. Unresolved trade and geopolitical tensions could lead to further protectionism, increased volatility and slower economic growth.
The world economy is in a fragile state, and while there are some signs of recovery, it remains uncertain and subject to risks. Central banks and governments are continuing to take action to stimulate growth, but there is limited scope for further monetary or fiscal stimulus if conditions deteriorate. Political uncertainty has already had an impact on trade and sentiment, and further risks could lead to a further slowdown in global economic activity. As such, it is important for governments and businesses to be aware of these risks and take steps to mitigate them.
