UNITED STATES (VOP TODAY NEWS) — The Economist magazine looked at the dangers for the global economy this year. The risk that the conflict between the United States and China is degenerating into a major trade war, as well as the eventual recession of the US economy because of the heavy indebtedness of US companies, are the most serious threats. serious.
The new ranking of The Economist indicates that the outlook for the global economy is deteriorating. Weekly experts assume that in 2019 growth will slow to 2.8% (compared to 2.9% in 2018), and up to 2.6% in 2020.
The growth could even be lower than forecast, warns the weekly. According to the authors of the ranking, several scenarios could lead to such an outcome.
“In addition to growing geopolitical uncertainty, there are serious vulnerabilities in the larger economies, including significant debt in China, the United States, and Italy, as well as emerging markets. In case of mismanagement, these weaknesses could significantly strengthen the decline and cool the global economy,” the report says.
The biggest threat to the global economy, the magazine’s experts say, is the transformation of the US-China conflict into a veritable trade war. The risk of such a scenario is moderate (intensity of risk: 15 points) according to the experts, who specify that such an outcome would have extremely heavy consequences.
According to the authors, the current negotiations between the US and Chinese authorities provide hope for an agreement that would avoid the escalation of the conflict. However, continues the weekly, even in this case the risk would persist because nothing will be able to impose on China a reform of the trade balance as desired by the US.
“There is also a risk that trade conflicts will worsen in the coming years and on other fronts, leading to a reduction in global trade. This would significantly affect inflation, the situation in the business community, the disposition of consumers and, ultimately, global economic growth,” says the report.
The Economist experts point out that this scenario could be triggered by the introduction of large import taxes in some countries and subsidies to local producers to deal with international protectionism.
The recession in the United States
According to the basic prognosis of the weekly, within two years the US economy will manage to escape a destructive recession even if GDP growth in the country is expected to slow in 2019 to 2.3%, and until to 1.5% in 2020. However, experts warn that the decline could prove much stronger because of the vulnerability of the US financial sector.
“As a result of a long period of extremely low interest rates, corporate debt has increased to almost 47 percent of GDP, exceeding the record set during the 2008-2009 global financial crisis. In addition, debt quality has also declined: more than half of US corporate debt is rated BBB (the lowest level of investment), while almost 60% of loans have been issued without an agreement on debt. service, “note the authors.
The slowdown in the US economy, experts say, could lead to an increase in the number of companies that reduce their investments and staffing while struggling to pay off their debts, as well as lowering their ratings pushing investors to reduce their investments.
The probability of such a scenario (its risk is considered moderate by The Economist with an intensity of 12 points, but the possible consequences would be heavy) “would greatly aggravate the slowdown in the world economy, because many countries would be affected by the decline the demand for their products in the US and the weakening of the investment flow”.
Earlier, analysts at Moody’s warned that the next crisis in the US could be caused by an increase in subprime corporate borrowing. Moody’s Analytics chief economist Mark Zandi points to the worrying resemblance between mortgages (subprimes), which led to the US financial crisis in 2007-2008 and the global economic meltdown, and the current market for mortgages. leverage and bad bonds.
“This is the biggest threat to the current business cycle,” Mark Zandi notes. The amount of these leveraged loans in the US, according to Moody’s, has reached the record of $ 1.4 trillion and is close to $ 2.7 trillion if we add the bad corporate bonds.
A major crisis in emerging markets
The weekly’s experts say that by 2018 the economies of several emerging countries have been hit by currency crises, and that in 2019 the situation could deteriorate (moderate risk, intensity 12 points). A major crisis could be triggered in emerging markets with the emergence of new difficulties in states whose economies are already unstable because of domestic problems and following the escalation of the trade war between the US and China.
Foreign investors could also withdraw because of the transformation of the currency crises in Argentina and Turkey into real banking crises against the backdrop of rising borrowing costs in foreign currencies.
“Under this scenario, the outflow of capital from emerging countries could become less selective and more severe, pushing countries with external imbalances to take painful measures, and the most vulnerable would end up in a deep crisis. The GDP of developing markets would fall sharply, which would also reflect on the global economy, “says the report.
The beginning of a long crisis in China
The probability of the collapse of the Chinese economy (in 2018, according to preliminary estimates, its GDP increased by only 6.6%, the worst result in 28 years) is considered unlikely by the experts of The Economist (intensity of risk: 10 points). But it is not excluded that the Chinese authorities may make a mistake by taking measures to support the republic’s economy in the trade dispute against the US. According to experts, the most vulnerable point of the Chinese economy is the amount of domestic loans, which exceeds 230% of GDP.
“Even an allusion to the bad situation in the banking sector could cause problems, given the debt boom of recent years. The breakthrough of credit bubbles is usually associated with a sharp slowdown in economic growth, “says the weekly.
Experts warn that if the Chinese authorities fail to prevent the “unfolding downward economic spiral”, this would cause a sharp drop in world prices on commodities, especially metals, which would affect the countries of America Latin America, the Middle East and Africa.
“Given the growing dependence of Western producers and retailers on demand in China and other emerging markets, the collapse of [economic] growth in this country would have serious global consequences, far more serious than if it had happened in previous decades,” states the report.
In the top-10 threats to the global economy in 2019, experts from the British weekly also write:
– a sharp rise in oil prices due to a shortage of supply;
– the beginning of military operations because of disputes over the islands’ membership in the South China Sea – the Spratley Archipelago (claimed by China, Vietnam, Taiwan, Malaysia, the Philippines and Brunei), the Paracel Islands (claimed by China, Taiwan and Vietnam) and Scarborough Reef (claimed by China, Taiwan and the Philippines);
– serious harm to major Internet segments due to cyber attacks;
– the outbreak of military activities on the Korean peninsula;
– the exit of the United Kingdom from the EU without agreement (no-deal Brexit);
– the beginning of a banking crisis in Italy because of the
Earlier, another list of the main threats to the global economy in 2019 was published by Bloomberg, according to which the main risks were the trade wars, the crisis in Italy, the Brexit without agreement, the armed conflicts in Asia and the fluctuations in the price of a barrel.
This article is written and prepared by our foreign editors writing for VOP from different countries around the world – edited and published by VOP staff in our newsroom.
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