In this article I will aim to provide with certain updates regarding the global economy. We will cover economic trends in Europe and the overall geopolitical factors affecting global economic recovery. Something on global debt trends alongwith some other important developments.
European Economic Growth Slows Down:
- The European Central Bank (ECB) has increased its interest rates to a record 4%, marking the 10th raise in 14 months. This move aims to bring inflation back to the target of 2%.
- Inflation in Europe was recorded at 5.3% in July, with an average expectation of 6.5% for the year. The European Commission has also revised its inflation forecast for 2024 to 3.2%.
- Economic growth in the Eurozone for 2023 has been revised down to 0.8%, and the 2024 forecast has been lowered to 1.4%. This slowdown is attributed to the impact of tight monetary policies and increasing climate-related risks. For instance, wildfires severely affected Southern Europe, posing a threat to the $2 trillion travel industry, which constitutes 6.2% of Europe’s GDP.
- Yesterday’s ECON episode is really insightful in this regard.
Geopolitical Factors Influencing Economic Volatility:
- The World Economic Forum’s Chief Economists Outlook suggests that geopolitical tensions will be a significant cause of economic volatility in the upcoming year.
- 90% of the surveyed chief economists believe that geopolitics will disrupt the global economy, while 79% think domestic politics could also contribute to this volatility.
- 61% of these economists anticipate a weakening global economy in the next year. However, 86% are optimistic that the global inflationary surge will subside within a year.
Global Debt Trends:
- The International Monetary Fund (IMF) reports that global debt has decreased for the second consecutive year but remains high at $235 trillion, equivalent to 238% of global GDP.
- Public debt has only reduced by 8 percentage points of GDP in the past two years, indicating that only half of the pandemic-related spending increases have been offset.
- China’s borrowing has surpassed its economic growth, with its non-financial corporate debt being the highest globally at 28% of GDP.
Furthermore:
- China will implement stricter regulations for US dollar bulk purchases to counter potential currency depreciation risks.
- US consumer prices rose rapidly in August, with gasoline being a significant contributor.
- The UK’s GDP saw a more significant contraction than anticipated in July, influenced by factors like heavy rainfall and hospital strikes.
- Russia has increased its inflation forecast for the next two years to 7.5% due to the ongoing war with Ukraine.
- Argentina’s annual inflation rate reached 124.4%, causing a surge in poverty levels.
- Japan’s annual wholesale inflation decreased slightly, but there’s a decline in confidence among Japanese manufacturing firms due to concerns about China’s economic slowdown.
- Corporate defaults rose above average levels in August, indicating increasing financial strains.
Geopolitical issues are expected to be a significant disruptor in the global economy in the coming year, with most chief economists predicting increased volatility. However, there’s a silver lining as many believe the worst of the global inflationary surge will be over within a year.
