The Winter of 2015/6 ushered in a new financial crisis as the Chinese stock exchange fell sharply, sending shock-waves around the world’s financial communities. The world’s centre of manufacturing was suffering, creating panic among investors everywhere across the world. The truth is, the world is heading for a new slump, which adds economic pressure on top of the existing recession-based world economy. Worst of all, these economic prospects are unlikely to improve at all in the near future.
Downsizing is now an economic reality for both the business community and also for local, regional, national and even international governmental bodies. It is an ongoing symptom that everyone has experienced in every market since 2007 and part of a world that is in crisis. Some economists assume these hard times must automatically be followed by an upswing of gigantic proportions but there is very little evidence that any of our existing political leaders have any way out of this recession, there is no real investment in change, no willingness to fix the problems that everyone can see right in front of them.
The world seems to be in crisis at all levels: economic, financial, social, political, diplomatic, even in the military. Worse the OECD is of the opinion that the world economy will not grow significantly in the next fifty years, truth is the current overlying economic direction is downwards and the outlook of falling living standards is a part of the life of everyday people across the globe, many of whom are working two of more jobs to get by, a recipe which will lead to political and physical struggles in the future, movements such as Occupy are set to grow in the coming years in response to the failing economic outlook, truth is the current period is worse than anyone predicted.
Lack of Investment
The leaders of big business are not investing in their own businesses. They see no future and little reason to invest.
The International Monetary Fund understands that the current period of global financial challenges is worse than all previous episodes of turmoil and warns that “the world’s leading economies should prepare for a prolonged period of lower growth rates.” In fact the reality is a decline, not growth, for example 2012 forecasts a GDP decline of 6% in the USA, 3% in Europe, and 14% in China (the background to that country’s stock market troubles), the prospects for return on investment are very low in the current economy with the head of the IMF, Christine Lagarde, stating that “medium-term growth prospects have become weaker… High debt, low investment, and weak banks continue to burden advanced economies.”
Since the US banking crisis of 2008, banks have failed to provide any investment in industry, which has resulted in the severe weakening of even the strongest of businesses. “The risks are rising”, warns Lagarde. “We need a new recipe,” yet she is unable to offer any way out. The IMF has no recipe for the future. Productive investment, which is required to underpin any boom cycle, is falling. We need to question whether we have reached the limits of our system on a global scale. Much of the developing world is in a worse state than western democracies.
Failure of Leadership
Have our governments, our businesses, our leaders, lost faith in our society and its ability to re-ignite itself? Is this why they are not investing?
Our current economies are experiencing low growth, low inflation and zero (or near zero) interest rates. These are the conditions that normally lead to stagnation. Look at the collapse of the Greek, Italian, and Spanish economies and you can see stagnation in those economies. Few economists can come up any answers to reignite national economies.
Britain fleeing the European Union is symptomatic of ongoing problems with both the British and European economies, but it would be foolish to assume that economic problems are limited to Europe, they are not. There are problems in “emerging markets”, US debt continues to sky-rocket, and there is little political leadership or willingness to fix the economic problems faced. In the meantime, the poorest people get poorer in every country across the globe.
Part of the problem is that traditional slump-busting mechanisms no longer work and the political or econimic leadership is clueless as to what to try next. Extreme levels of national debt in the majority of western nations rule out any rescue packages or “huge injections” of state money at the present time. At the same time, the economies are all stagnating.
In the USA, it is possible to clearly identify a crisis of leadership in the run up to the presidential elections. Democrat nominee, Clinton, is more like a typical Republican and at the same time, the Republican party has taken a dramatic lurch to the right with its nominee having been compared to Adolph Hitler by some commentators.
The world needs to look beyond the current democratic model to involve real people in the running of our countries. What is necessary is participation, not mere representation.
Global Debt Crisis
Since 2008, global debt has actually risen. There is no real financial healing that is capable of turning around this situation with the level of debt at an unprecedented level, never seen before. Household and corporate debt has never before reached such heights. To compound this, governmental debt is higher than it has ever been in a time of peace, and shows little sign of abating.
In the past, economic crises would have led to austerity measures intended to lower the volume and burden of debt, particularly state debt. Yet in February 2015 the McKinsey Global Institute stated that global debt has increased by $57 trillion, representing 286% of world GDP. Every sector of the world economy is in desperate trouble and only a few countries, dependent on oil prices, were reducing their debt levels. In addition, China, Brazil, India and Russian economies are slumping. The slow down in emerging markets is even more dramatic.
The IMF accepts that no sector of the world economy is improving but crucially, it was growth in the Chinese, Brazilian, Indian and Russian economies which actually limited the impact of the 2008 recession. Such protection no longer exists. Indeed, it could be argued that this now represents a danger that threatens to drag down the whole world economy. All it needs is a trigger. The truth is, in 2008 the world financial institutions peered over a brink into a precipice out of which it would be impossible for our economies to recover. Economic prospects have not really recovered and we are as close to that brink as ever before.
This is only the first part of a look at future economic prospects and future topics are intended to cover:
- The problem of emerging markets
- The crisis in China
- World Trade
- The prospect of permanent austerity
The images used in this articles are all provided by Peter B. Giblett or are CC0 Public domain images from Pixabay, images include:
- Featured Image: Sparks-of-Industry-by-tattybadger-CC0-Public-Domain-from-Pixabay
- Recession Public Domain Image collection by IMSI, collection owned by Peter Giblett
- Bank robbery by TBIT CC0 Public Domain from Pixabay
- Dollar sign Domain Image collection by IMSI, collection owned by Peter Giblett