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  • Rovindu Ambagolla

Monday Market Musing >>> Global Economic Outlook


Picture Credit: Adam Nir


The world economy has been on a rollercoaster in the past two years. Back in 2019, the world economy was booming, with countries such as China, the US, Japan and the EU spearheading the race to reap better economic growth. However, in 2020 the Coronavirus pandemic left world leaders and governments all around the world in shambles, forcing economic activity to grind to a halt.


It has almost been two years into the pandemic, and nations are slowly starting to open their economies once again. However, the scars left by the pandemic on economies are still fresh and it’s important to understand how individual economies are faring as they try to bounce back from the epidemic.


China

China’s economic recovery has been slowing down, which came as a shock to even expert analysts. Just a few months ago, experts were forecasting China to excel this year after they cautiously reopened their economy and predicted China to be on its way to easily surpass an 8% growth rate. Now due to the slowdown of economic growth in the country, companies like Goldman Sachs Group warn that China could see sub-5% growth next year.


There are multiple factors which caused China’s sudden decrease in economic growth. One of the leading factors was the falling real-estate prices and the credit-market turmoil created by the default of Evergrande, China’s second largest real estate developer. This combined with an ongoing energy crisis in China has resulted in a massive setback to their economic growth.


As China is a major importer of raw materials, their economic slowdown will cascade onto other economies as well.


USA

The US is doing better than its rival so far. Economists are predicting an increase in the value of purchases, meaning a higher rate of household spending this quarter. This will help businesses catapult themselves back into the market and ramp up production.


Joe Biden’s trillion-dollar infrastructure bill has passed the Senate and is starting to be set in motion. The bill will focus on upgrading the nations power grids, highways, airports, and expand broadband internet access in the country. The White House stated that the bill will not only upgrade the nations aging infrastructure, but also create millions of jobs in the process, which is vital to economic growth, especially after the pandemic pushed millions into unemployment.


Picture Credit: John Mcarthur

Europe

The UK has held off increasing the interest rates in the country this month due to their concerns in the labour market. Andrew Bailey, Governor of the Bank of England, stated that the workforce situation was a crucial element in why policy makers didn’t increase interest rates this month, commenting “If you ask the question why haven’t we done it now, the answer is all to do with the labour market”. This decision boils down to the fact that there was over a million people in the Furlough program ( UK scheme that provided funding for people out of work due to Covid) after it ended in September. However, the UK’s economy is set to grow by 6.5% this year. Iceland has already raised interest rates and Norway is set to follow suit.


Turkey however has taken a different route. They have slashed interest rates for a third continuous month. This has had a negative effect on the strength of the Turkish lira as it dropped by 25% against the US dollar this year, which is the biggest loss amongst major currencies so far this year.


November 15th 2021 | 4:20 PM

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