What is the current global economic situation

Global Economy Changes, Improvements & Struggles Right Now

If we measure the traditional trend of the global economy, it was mainly based on trade, capital flow, and immigration. We can feel the shift of opinions and policy changes that ideologically and significantly impact the economic results. It proves that we have entered a new era of the global economy.

Yes, the global economy is changing, and the trend of this change can be witnessed in three important phases. 

  1. The first phase- around 2015:  This period witnessed drastic changes when low-wage countries like China started to compete with other countries. It was also when European countries were worried about the number of refugees coming to them. This phase witnessed Brexit and trade tensions between the USA and China. During this period, the world felt a change in the outlook of the global economy as countries protected themselves from foreign competition.

  2. The second phase- COVID-19 Pandemic: This period highlighted the importance of becoming self-reliant. The shortage of essential items and the dead global supply chain made it clearer for many countries to be more resilient. However, no immediate changes in policies and trades were made, but this phase marked the beginning of the third phase. 

  3. The third phase- Russia-Ukraine war:  The war between these two countries made the world discuss National Security. It exposed the need and dependency of European countries on Russia’s energy. It made it clear about the loopholes of the current global supply system. This also helped America to restrict exporting semiconductor technology to China. Interdependence and interdependence mean that the global economy is entering a new era of international trade and change in global economic relations.

How is the economy doing right now?

Changing dynamics of globalization: The global economy is constantly changing, according to recent research highlighting the significant growth in the movement of knowledge-based services and education like intellectual property, data, and migration of international students.

This resulted in a change in the economic dynamics and the trends of the countries, especially China, which was producing more within its boundaries. 
There is more focus on intangible and knowledge-based exchanges, potentially resulting in a new face of global interconnection.

Global interdependency:

Countries still depend on each other for essential resources and products, which highlights the importance of cooperation in trade and diplomatic relations on the global stage. It also underscores the true global nature of a modern economy. 

North America imports approximately 25% of the resources and manufactured products it uses. On the other hand, data and intellectual property are highly produced in the United States and Europe, whose potential consumers live in Asian countries like China and India.

In fact, China, being the biggest exporter of various goods and food, is a substantial importer of minerals and energy from various countries. 

Middle Eastern, sub-Saharan African, and Latin countries rich in natural resources significantly depend on other countries for essential manufactured goods, electronics, and pharmaceuticals.

Geopolitical situation and evolution of global trade flows:

Today, global trade flows are categorized based on 4 broad categories according to the impact of the geopolitical situation on them:

  1. High-tech transformation: These semiconductor and electronic industries are at the top of the discussion as the sectors rapidly evolve and held a significant place in the market share over the past few decades. This sector is important because it has a significant security implication and is essential for economic growth. Most importantly, only Tiwand holds a monopoly when it comes to semiconductors. 

  2. New hubs and industries: The second category is mainly provided to the textile and apparel industry as they create new hubs because they are more sensitive to geopolitical situations. Consumer electronics and similar products also fit in the category as they experience ongoing supply chain changes.

  3. Evolution of the service sector: The trade-in service, particularly in IT, finance, and professional services, is transforming greatly. This will impact and reflect the changing nature of the global economy.

  4. Steady and stable: Some industries like food and beverages, paper, and printing are stable globally. They are not subject to strong forcing mechanisms, and the great change in trade patterns does not impact these industries.

Focus towards net zero worlds:  

  1. The world is transitioning towards a net zero emission future, which includes carbon footprints, which are also connected to shipping and transportation.

  2. Energy-generating technologies and minerals like nickel and lithium are becoming fundamentally important for constructing a clean energy infrastructure. These resources are concentrated in a few countries, highlighting the importance of cross-border capital flows.

  3. The problem lies with developing countries, as they must increase their spending on sustainable infrastructure by balancing other development projects.

  4. It is critical to efficiently distribute assets, knowledge, and financial assistance to achieve a sustainable and carbon-neutral future to accomplish the net zero transition.

What are the biggest issues facing the global economy? 

It was expected that the global economy would rise further. But, due to the geopolitical situation, the increasing spending of people in developed countries, and the bouncing back of China's economy, resulted in the slowdown of global economic growth in 2023. The other reason is that the income growth in African and Latin American countries has remained as expected. 

Many other reasons have significantly contributed to this slow global economic growth.

  • The lasting impact of the pandemic: The COVID-19 pandemic has left lasting damage to the global economy and put the economy in a period of slow growth. The problems of low investment and increasing debts are even worsening the situation. Slow income growth could increase poverty and hunger and decrease job opportunities and investment in infrastructure and innovation.

  • Inflation is still high in many countries: The central banks have already made a forecast about the inflation rate of the coming years, but the truth is prices are expected to slow down but not as predicted by the food prices in developing nations will continue to rise, which will make it difficult for them, particularly the poor, to afford. This may also lead to food shortages. Read more.... Effect of Inflation on Global Economy

  • Unemployment despite having opportunities: While job opportunities are numerous in developed countries, the problem is that there need to be more qualified people to fill them. As a result, the economy will continue to grow slowly. Also, most people prefer to work from home, which has increased the disparity in salaries between men and women because many prefer jobs that suit their circumstances.

  • Inability to manage the country's finances: Many emerging countries need help managing their debts and budgets. This is because interest rates are rising, and they must repay the debts in dollars. This makes it more expensive for these countries to pay off their debts. Because of this, the countries also find it difficult to invest in the country’s foundational projects related to education, healthcare, sustainable infrastructure, and renewable energy initiatives to improve future conditions.

  • Geopolitical tension and financial stability risk: Because of international conflicts and wars, some governments impose restrictions and penalties and halt imports from other countries. This interrupts the cross-border movement of money and economic transactions. Businesses and financial institutions find it more difficult to conduct their normal business operations, which stakes the global world's economic stability.

What will happen to the economy over the next five years?

The International Monetary Fund's economic forecast for the global economy over the next five years is very cautious. 

  1. Global economic growth was 3.4% and is expected to fall to 2.8%. On the bright side, growth will pick up to 3% next year. A few global circumstances may even worsen the number, and the financial sector may continue to face difficulties. Global growth may even fall to 2.5%.

  2. The economy will grow at about 3% over the next five years. The bad news is that this is the slowest growth forecast since 1990. Over the last two decades, the average growth rate has been 3.8%.

  3. There is a need to make strict economic policies to control inflation. The issues in the financial market need to be tackled properly, and conflicts like the Russia-Ukraine war must not be repeated. 

  4. There is a growing trend of countries economically not working together, and if it persists, global growth will not get better in the short and medium terms.

Bottom Line

The developments in National Security and the global supply chain point towards a change in a global scenario. The change is very uncertain as it has its opportunities and challenges. The slow global economic growth makes us realize the importance of wide economic policies to control inflation and food shortages. There is a need to tackle the bad geopolitical picture to drive the world's economic scenarios in the right direction. 

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Mia Thompson 13 Nov, 2023


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