In a recently published report, the IMF quotes an increase of global output of 3.7% in 2014, translated up from 3% last year. Thanking a marginally stronger U.S. economy, this would mark the fastest growing global economy since 2011. With many world markets expected to continue on a moderate trend upward, it would seem that the system has finally awakened from the soporific effects of the economic crises of the last decade. And yet, despite this optimism from the IMF, the global economic outlook seems bleak in the coming year. Although world markets are trending…
In a recently published report, the IMF quotes an increase of global output of 3.7% in 2014, translated up from 3% last year.
Thanking a marginally stronger U.S. economy, this would mark the fastest growing global economy since 2011. With many world markets expected to continue on a moderate trend upward, it would seem that the system has finally awakened from the soporific effects of the economic crises of the last decade.
And yet, despite this optimism from the IMF, the global economic outlook seems bleak in the coming year. Although world markets are trending upward, inflation rates are trending upward as well, lending the false hope for cheaper (and therefore more accessible) markets in the near future. Such actions can lead, the IMF states, to “a downward spiral of activity,” especially in the euro-zone.
In the wake of 2013 budgetary concerns, this presents a challenge that must be attacked by euro member-states to engender a more immediate market for the private consumer. Failure to do so may create a paralytic effect and necessitate state intervention on a level similar to the 2012 euro-zone stimulus package.
Neither does stock markets around the globe seem immune to anxiety. The recent rash of scandal and unrest in emerging markets have only increased the alarm, leading to a sweeping sell off in Asian and European markets alike.
While these sales are currently focused in emerging markets such as Thailand and the Ukraine, ripple effects are already manifesting themselves elsewhere in areas like Germany, France, Japan, and also Singapore. This is seen clearly by how the respective countries’ major market indices – the DAX, the CAC 40, the Nikkei 225, and the Straits Times Index (SGX: ^STI) – have fallen by some 4.4%, 4.2%, 14%, and 6.4% since the end of 2013. With resolutions unlikely in the near future, the global economy may need to prepare for another lean year.
Even China does not seem immune to economic difficulty. Although 2013 has shown state leadership as capable of handling a slowing economy, the risk of a crash has not yet been fully averted. At least one recent article has pointed out the necessity in keeping China’s debt-to-GDP under control, something that seems highly unlikely given the Chinese desire to shift from a production to a consumption economy.
A silver lining
There are silver linings to this seemingly black cloud. A stronger U.S. economy allows for the extension of more overseas credit as the U.S. government cuts back its stimulus programme. A more stable dollar could create a stable foundation for ailing emerging markets to fall upon, although the chance of this occurring immediately is slim.
China, while balanced precariously, also exhibits signs of maintaining its growth domestically and investing abroad. Although the global market share for China has fallen from 14% to 4% in recent years, China has the potential to “pick up the slack” for regional markets under-performing in the current economy.
Nearby Japan may use this momentary hiccup in economics to secure a foundation for Prime Minister Abe’s long-term growth strategy. While undervalued by several economists, the fact remains that a competitive market between China and Japan tends to encourage a stable and attractive Asian market (if one occasionally plagued by political considerations).
South America’s recent surge gives the final major boost to the global economy. Despite many countries exhibiting lackluster growth figures over the last years, the buildup in Brazil and Venezuela allow for optimism as the year progresses. In the case of the former, the upcoming World Cup could presage an unprecedented year of growth in a country that has stalled lately; in the latter, Venezuela moves closer to regionally liberalizing markets, allowing the area to inch slowly toward a more vibrant South American market.
Warning: narrow path ahead
Few could say that the global economy is not on a razor’s edge right now. Although established markets are recovering nicely and seem to trend solidly into the near future, the relative instability of emerging markets is worrying. On the Asian market, states must take great care to not be pulled into too many directions from anxious investors. With reforms stalling or non-existent in formerly vibrant markets (such as India), moving forward requires marshaling limited resources into efficient utilization and arresting the economic slide under way. Failing to do so only allows for a regression into less friendly markets and regional depression.
Meanwhile, more developed markets must change private perceptions from saving to consumer. While this may not stave off long-term inflation, the increased flows of capital can keep the economy from decaying further.
Many seemed to be concerned about the unseasonable chill that has characterized the recent winter in the USA. Ironically, the world is approaching a similar moment. Will the world see its shadow and face more years of economic regression or are the recent events in the world market just the last hiccup before a global economic thaw?
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. This article was written by Kurt Avard and first published on fool.com. It has been edited for fool.sg.