How can world economic growth be maintained under the new normal?
- By He Yafei
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E-mail China Today, August 9, 2016
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AIIB President Jin Liqun, said on June 28 at a sub-forum of the 2016 Summer Davos Forum that the AIIB would support countries along the Belt and Road, and that regional cooperation would benefit all sides. |
World Bank data released on June 7 imply that world economic growth in 2016 is likely to be below 2.4 percent. This is yet another occasion on which the International Monetary Fund and World Bank have recalibrated and lowered their predictions of 2016 world economic growth. The economic sphere is indeed currently fraught with widespread concern and pessimistic prognoses.
The expected recovery period after a global financial crisis is five to seven years. However, eight years have passed since the 2008 financial debacle, and world economic recovery remains sluggish.
The Western developed world is still ridden with excessive debt, high unemployment, and low growth. The sustained world economy depression, plus the Federal Reserve's raising of interest rates and appreciating of the U.S. dollar have caused fluctuations in the global financial market, and falling bulk commodity prices. Meanwhile, most developing countries have suffered economic slowdowns, depreciation of their currencies, and higher debts. It's highly possible that the world economy has now reached the bottom of the "L-shaped" growth curve, signifying that these doldrums will continue for a while. The situation can be ascribed to factors causing periodic economic fluctuations, and an imbalanced world economy in sore need of structural adjustment.
It is generally agreed that the following factors significantly influence the world economy:
First, China's remarkably rapid economic development exerts considerable influence on the world economy. Now at the critical stage of structural adjustment, the country is shifting to a new economic growth mode based more on demand than investment and export, as its service industry share simultaneously increases. What's more, China's supply-side structural reform has kicked off, and its economic adjustment achieved preliminary results.
Second, as key commodity prices have stayed low, certain emerging economies whose economy heavily relies on resource exports are seeing their debts mounting, their currencies depreciating, and their GDP contracting. Taking the falling crude oil price as an example, this should, in theory, have stimulated the demand for and consumption of crude oil, and so promoted economic development in the countries importing the fuel. The sluggishness as a whole of the world economy, however, has impaired the positive effect of this drop in price.
Third, in the developed world, the Federal Reserve has tightened U.S. monetary policy, so bolstering the persistent strengthening of the U.S. dollar. Meanwhile, an easing monetary policy still prevails in the Eurozone and Japan. Certain Western developed countries have even, unprecedentedly, resorted to the "negative interest" policy tool. The interest on Germany's 10-year-term treasury bonds, for instance, has fallen below zero. All this has exacerbated international financial market fluctuations, encouraged the currency-hedging tendency, and deteriorated the international financial environment, so impeding economic development in the emerging markets.
Fourth, an anti-globalization force is rising in tandem with the globalization trend, evident in mounting populist and nationalist sentiments in some countries, developed ones in particular, as can been seen in the U.S. presidential campaign, and the Brexit.
Meanwhile, geopolitical conflicts between great powers are worsening and global stability is under threat. Anti-globalization has fueled political isolationism and trade protectionism, so undermining the foundation of big power cooperation as well as the spirit of braving adversity in solidarity, both necessary for world economic growth. The downward trend in the world economy is difficult to reverse without adequate cooperation between major economies in the macro-economy field.
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