Trends in the world economy

“One of the biggest trends in economic history was the rise of the West, beginning in the 18th century. In the 19th century, all of Europe and European outposts spurted ahead of the rest of the world. By the end of the 20th century, the average worker in Western Europe or America earned about 20 times a much per hour as a similar worker in China or India, but new trend formed. Wages in India and China are rising sharply. Those in America and Europe are stagnant. China is growing faster than at any time in the last 10 years and India is not far behind.”

As the world recovers from the global recession and financial crisis, a new economic order continues to emerge. The economic midpoint of gravity is shifting away from the United States and Europe toward China and Asia.

Following the years of recovery from the global financial crisis, the world economy is on the edge of yet another major downturn. Output growth has slowed during 2011, especially in the developed countries. This growth is not sufficient in order to deal with the jobs crises in most developed economies and will drag down income growth in developing countries. This global downturn is because of the persistent weaknesses in the major developed economies, and is related to problems left unresolved in the aftermath of the Great Recession of 2008.

The most pressing challenges are the continued jobs crisis and the declining prospects for economic growth, especially in the developed countries. The rapidly cooling economy is both a cause and an effect of the sovereign debt crises in the euro area. It has undermined demand for the developing world’s manufactured exports and restrained prices of their commodities, South Africa is a notable casualty. European banks had been conduits for foreign money flowing into emerging markets. Now they are pulling back as they grapple with the problems at home.

The United States economy is facing high unemployment and financial sector fragility. The European Union and the United States of America form the two largest economies in the world, and they are deeply intertwined. Their problems could easily feed into each other and spread to another global recession. Developing countries, which had rebounded strongly from the global recession of 2009, would be hit through trade and financial channels.

The financial turmoil following the August 2011 political wrangling in the United States regarding the debt ceiling and the deepening of the euro zone debt crisis also caused a contagious sell-off in equity markets in several major developing countries, leading to sudden withdrawals of capital and pressure on their currencies.

As the problems are deeply intertwined, the only way for policymakers to save the global economy from falling into a dangerous downward spiral is to take concerted action, giving greater priority to revitalizing the recovery in output and employment in the short run in order to pave more solid ground for enacting the structural reforms required for sustainable and balanced growth over the medium and long run.

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One comment

  1. Very good post. You cover all the main topics. To make it even better you need to link to sources and also present and link to some evidence – add some numbers to the story. Keep up the good work.

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