Friendly Speed, Unfriendly Risks

Global economy 2018

By Dr B K Mukhopadhyay

So, the warning bells are ringing! The Bank for Intertiol Settlements (BIS) - known as the central bankers’ bank – assessed that the situation in the global economy was similar to the pre-2008 crash era when investors, seeking high returns, borrowed heavily to invest in risky assets, despite moves by central banks to tighten access to credit. BIS opines that Investors are ignoring warning signs that fincial markets could be overheating and consumer debts are rising to unsustaible levels, the global body for central banks has warned in its quarterly fincial health check. The BIS is of the view that attempts by the US Federal Reserve and the Bank of England to choke off risky behaviour by raising interest rates had failed so far and unstable fincial bubbles were continuing to grow

What About the Economies Right Now ?

Recent weeks’ economic data from India, Chi and Japan, as well as favorable indicators from Europe and another month of strong employment growth in the U.S., reinforced the message that the global economy continues to gather momentum. With all four major economic regions now contributing directly to the improved prospects for global growth, these developments could also lower some of the currency and trade tensions. The prospects for better actual and future growth, thereby increasing the possibility of improved fundamentals validating notably elevated asset prices, cannot be ruled out in spite of the fact that the globe has been indicating a number of risks that require continuous attention [read US – North Korea deteriorating relations, Pakistan’s zero control over terrorist activities, among others].

The UN opines that the global economy is growing by about 3 percent- -the rise “a welcome sign of a healthier economy”, but the growth” may come at an environmental cost.” The U.N. said the world economy is forecast to expand at a steady pace of 3 percent in 2018 and 2019.

We May Look At The Performance of the Biggies.

As for the United States, the report said following an estimated growth of 2.2 percent in 2017, America’s economy is forecast to expand at a steady pace of 2.1 percent in both 2018 and 2019. “This marks a significant improvement compared to the 1.5 percent growth recorded in 2016,” it said. “The acceleration largely stems from shifting dymics in business investment and, to a lesser extent, net trade.” 

In its latest assessment of the global economy, the OECD found job creation in the UK was losing momentum, while consumer spending would remain subdued as higher inflation, pushed up by the depreciation of sterling after the Brexit vote, continued to hold back household purchasing power. While a weaker pound should help to increase exports, import growth is projected to fall as a consequence of weaker private consumption, accordingly.

“The major risk for the economy is the uncertainty surrounding the exit process from the European Union, which could hold back private spending more than projected,” its report found, adding that the prospect of maintaining the relationship “with the EU would lead to stronger-than-expected growth.

The U.N. stressed that economic gains remain unevenly distributed within countries and across regions, “and many parts of world have yet to regain a healthy rate of growth.”

It is now crystal clear that crucial role in the global economy is played by the developing block, especially the emerging economies. The UN Report has gone to the details of current performance. Accordingly, “……Developing economies remain the main drivers of global growth,” the report said. “In 2017, east and south Asia accounted for nearly half of global growth, as both regions continue to expand at a rapid pace. Though the Chinese economy alone contributed about one-third of global growth during the year, yet contribution has also been very prominent so far as economies like India, Bangladesh, Vietm, South Korea and the like are concerned. The IMF is of the view that reforms by Beijing in recent years had not gone far enough. “The system’s increasing complexity has sown fincial stability risks,” the IMF’s assessment said. “Credit growth has outpaced GDP growth, leading to a large credit overhang. The credit-to-GDP ratio is now about 25 percent above the long-term trend, very high by intertiol standards and consistent with a high probability of fincial distress.

The report said improvements in Argenti, Brazil, Nigeria and Russia as they emerge from recession “also explain roughly a third of the rise in the rate of global growth between 2016 and 2017.”

Rightly, the caution has been echoed - “Failure to address these issues may leave a quarter of the population of Africa in extreme poverty by 2030”.

Problem Ridden Rural and Urban Region

Many commodity exporting countries are facing economic challenges, here also we have to look at what the report assessed. From 2017 to 2019, it said, “further setbacks or negligible growth in per capita GDP is anticipated in central, southern and west Africa, western Asia and Latin America and the Caribbean.” The U.N. said these regions are home to 275 million people living “in extreme poverty.”

The $1.90 per person per day threshold for extreme poverty is a standard adopted by the World Bank and other intertiol organizations to reflect the minimum consumption and income level needed to meet a person’s basic needs. That means that people who fall under that poverty line—that’s 1/8 of the world’s population, or 767 million people —lack the ability to fulfill basic needs, whether it means eating only one bowl of rice a day or forgoing health care when it’s needed most.

In fact, the most basic fincial services reach only around 10 percent of rural communities.7

It is well known a fact by now that developing countries are experiencing a rapid growth in the urbanization. As a result of these, countries are faced with shortage of jobs. Unemployment rates rise as a result of causing people to apply for government-funded programs and benefits. “Businesses and governments cannot produce enough jobs to meet the demand of a fast-growing population” in developing countries. The major problems associated with urbanization are: High population density, idequate infrastructure, lack of affordable housing, flooding, pollution, slum creation, crime, congestion and poverty.

Actually, regarding the state of infrastructure little said is better. The rapid population growth has led to an acute shortage of dwelling units which resulted to; overcrowding, traffic congestion, pollution, housing shortages (slum and squatter housing), high rents, poor urban living conditions, low infrastructure services, poverty, unemployment, and poor sanitation which has become pervasive and indeed high crime rate.  A number of developing countries are still faced with bad road network, lack of power supply, idequate water supply and some basic amenities. The draige is poorly constructed leading to difficulty in accessing the roads due to the flood leading to the flood disaster in some developing countries. Problems such as insufficient housing, especially particular for low – income families, are being faced, which resulted in overcrowding of already congested areas, the continuing deterioration of rundown neighborhoods, high social cost and untold persol misery. Measures proposed to offset rising costs in public housing that include, among others, less exclusiory zoning regulations, reduced tax burdens, cooperation with the private builders, encouragement of cooperative housing organization, promotion of industrialized building techniques, use of low- cost building materials and cheaper mortgage credit, are there but the overall position remains far from being satisfactory. Flooding is another very serious problem faced in urban areas, even in capital cities of developing countries, during the rainy seasons in particular.