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Global economy slows amid multiple uncertainties

Author  :  ZHAO YUAN     Source  :    Chinese Social Sciences Today     2019-09-05

In light of increased trade frictions, the global economy is facing multiple uncertainties in the third quarter, according to a report released in mid-August by the Ifo Institute for Economic Research, a think tank based in Munich, Germany. The report predicts that the growth rate of world trade will slow markedly, private consumption and investment will decrease, and interest rates will fall.

Ifo President Clemens Fuest said that all the economies in the world will be affected.

A recent IMF report predicts that the global economic growth rate will be 3.2% in 2019, the lowest since 2009, and the growth rate in 2020 may pick up to 3.5%.

Laurence Boone, chief economist at the Organization for Economic Co-operation and Development, said that manufacturing and investment are negatively affected by increased global economic uncertainties that shake investor confidence. In her view, the major risks in the future include new trade barriers, a sustained below-average growth rate and increased financial vulnerability.

Arturo Bris, a professor of finance at the International Institute for Management Development in Switzerland, said that the aftermath of the financial crisis is still affecting the major economies. He suggested that the major economies should implement prudent fiscal policies, reduce public debt and stabilize investor confidence.

Since the 1970s, the expansion of global value chains has been an inevitable trend in the development of the world economy, said Bernhard Dachs, a senior scientist at the Innovation Systems Department of the AIT Austrian Institute of Technology. Changes in global demand and stronger regional integration in Asia have contributed to the expansion of global value chains.

Today, however, there are indications that this trend has slowed or even stagnated, Dachs said. An important reason for its slowdown is that the market is almost saturated and lacks development opportunities.

Some studies say that the sluggish demand for investment products is the main reason for the relatively stagnant import growth since the financial crisis. As the Asian countries’ advantages in labor cost weaken and the supply chain is overstretched, enterprises’ flexibility and their ability to meet demand in the short term will decrease, and the transfer of production back to the enterprise’s home country will become a trend. At the same time, digital production technology will also encourage this trend, Dachs said. New technologies can increase productivity, product quality and flexibility, while promoting more localized production.

Brian Nolan, a professor of social policy at the University of Oxford in the UK, said that the emergence of Brexit and Donald Trump’s insistence on “America First” have been accompanied by economic slowdown and reduced employment. Studies have shown that slow economic growth has fueled the rise of populist parties in Europe.

Boone stressed that governments must strengthen international dialogue to restore confidence and must encourage investment to meet future challenges. After the financial crisis, public investment in European countries has been seriously affected and has not yet recovered. Part of the reason why digital technology fails to increase productivity and wages is the lack of supporting infrastructure and insufficient skilled labor. In order to develop a digital economy, the government should boost investment in skills training and infrastructure construction. Enterprises also need to strengthen skills training and reform their corresponding organizational structure.

The Ifo report said that promoting multilateral cooperation and policy reform is crucial to facilitating global economic growth. Mitigating trade frictions and reducing trade barriers can effectively address uncertainties. No country should impose tariffs to address a bilateral trade deficit. At the same time, fiscal policies should balance multiple objectives and strive to boost growth potential, encourage inclusiveness and strengthen economic resilience.

 

(Edited by Jiang Hong)

Editor: Yu Hui

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