The global economy was weak even before the recent commodity and stock-market crash. However, the recent reports from China, Japan and Europe, among other countries, imply that there is a sharper slowdown in economic growth compared to analysts’ expectations. With this, policymakers in the mentioned countries are pressured to develop a more valid and effective way to support their economies.
Among these countries, China is the one that sends signals that worry investors the most. After around two decades of impressive growth, the economy of the Asian country is getting sluggish and its officials are having a hard time boosting it. Just last month, its exports have plunged by over 8 percent and the gross domestic product of China only grew 7 percent during the second quarter—the slowest rate in 6 years.
In the middle of this predicament, the Chinese government has implemented several intervention measures on the financial markets, which have only exacerbated the problems that the Asian economic powerhouse is currently facing.
First, Chinese leaders have commanded the securities industry and state-owned companies to purchase stocks, in an attempt to shore up confidence. However, this strategy failed and stocks have continued to crash. Next, the authorities have decided to greatly devalue its yuan, and this resulted in the sharp decline of emerging countries’ currencies against the US dollar.
Several market analysts and economists had hoped that the rise of the Chinese economy could be beneficial for the world economy as it will create another major source of growth apart from the US. However, the thing is, the mishandling of the Asian country’s economy just goes to show that it might not yet be ready to assume that role.
Meanwhile, the government of Japan said last week that there is a 0.4 percent contraction in the economy during the second quarter of 2015. Furthermore, the industrial activity and export engine of Japan has been losing steam partly due to the weaker demand from China. In my opinion, Prime Minister Shinzo Abe also has to exert more effort in terms of urging corporations to invest more and hike wages.
When it comes to the eurozone, it seems to be performing a little better, but not so much. During the second quarter, the economy grew by 0.3 percent, down from the first quarter’s 0.4 percent growth. Although Spain and a few other countries caught up in terms of growth, that of Italy and France slowed down. From my point of view, leaders of European countries shall try to revive their economies with public spending, which they are avoiding to lessen their budget deficits.
The United States, which is the world’s largest economy, seems to be in good shape. However, it is not growing fast enough to aid the rest of the world. Moreover, the economic downturn in other countries could even weaken the growth in the US since it dampens demand for exports from the United States.
With the recent strengthening of the greenback against other major currencies, goods from the United States became more costly for consumers from other parts of the world. As the Federal Reserve is planning to increase interest rates as soon as September, I believe that the central bank must consider the weak global economy first before making that move.
This decelerating economic growth in several countries got people asking: “Is a global recession coming?”
No one knows for sure, but economic models and recent events point to a pretty substantial probability of a recession. Hence, governments and central banks must wake up and do their bit in fighting off the financial crisis. They should start directing their energies towards the much-needed reforms, instead of employing temporary fixes. By doing so, real economic recovery will be achieved.