Global economy, Economic Markets and their changing scenarios with time
History Of Global Economic Markets
Global economy implies the interconnected worldwide economic activities that take place between multiple countries which may have a positive or negative impact on the economic markets worldwide. A large misconception is that these economic markets are controlled by governments of the largest world economies.
However, the underlying fact is that big banks and large corporations that control and essentially fund these governments have the real power over these global economic markets.
Excerpts from history prove that these large financial institutions also participate in traditional government businesses like power production, oil refining and distribution, and also the operating of public assets such as airports and train stations.
International transactions involving various trades of fruit, foods, natural oil and weapons help in understanding the global economy and result in a number of benefits to the world economies.
Free trade, movement of labour, increased economies of scale, increased investment are some of the benefits of a global economy. Meanwhile, natural resources, infrastructure, population, labour, human capital, technology and law are some of the factors that would affect global economy and their trade transactions.
Changing Global Economic Markets And Its Trends
In 1999, China’s economy was only one tenth the size of the U.S. and in 2019 it was almost two-thirds as big. Disruptive forces are shaking up global economy fundamentals pushing out the policy rulebook. China’s rise which was mainly driven by protectionism is now freezing.
While the digital age and automation in all walks of life is benefitting a few economies and boosting productivity, following old methodologies are leading to wiping off benefits for some economies. Also, climate change in major economies impact global trade.
Battling these challenges and achieving the right mix of smart investment, skilled workforce, innovation capacity and effective governance is a test that all economies are currently facing. However, a major impact of these are on low-and-middle income economies who face difficulty in adopting to these disruptions.
Current Global Economy Scenario
Sixteen economies of the trillion dollar club account for almost 78% of the global GDP, based on 2019 numbers. Meanwhile, the top five countries – U.S., China, Japan, Germany and India – contribute a major 55% of the world GDP.
Amid the COVID-19 pandemic, the United Nations estimates world economy growth to narrow down by 3.2% in 2020. “The world economy is expected to lose nearly $8.5 trillion in output in 2020 and 2021, nearly wiping out the cumulative output gains of the previous four years,” the UN report added.
The report strongly indicates that world population below poverty line would increase significantly with an additional 34.3 million people (including those in informal sector). African countries would account for almost 56% of this increase.
Kristalina Georgieva, the managing director of the IMF says that in January 2020 they were expecting that 160 of its member countries would be reporting positive per capital income growth. But now, the scenario is different and more than 170 countries are likely to see negative per capita income growth.
U.S. – Major Contributor Of Global Economy
Major driving factors for the U.S. economy to support its annual GDP ($21.44 trillion) growth are an immigrant-enhanced workforce and trade-boosted gains in productivity. Without these drivers the economy would face a major backslash.
A highly developed and technologically advanced services sector contributes almost 80% to the total output of U.S. economy. The Fortune Global 500 companies has one fifth of the companies from the U.S. with major focus on areas like technology, retail, financial services and healthcare.
Besides this, the economy also boasts of being the second largest manufacturer in the world and a leader in higher-value industries such as automobiles, aerospace, machinery, telecommunications and chemicals. The U.S. economic growth is constantly being driven forward by ongoing innovation, research and development as well as capital investment.
With almost 77% of its GDP receiving contribution from service sector, looming jobless rates at this point in time is a big threat to the economy. IMF estimates U.S. economy is likely to narrow by 5.9% in 2020.
China Growth Story – Changing Global Economy Dynamics
Rapid modernization of infrastructure, advances in education, investment in research and development and can-do government has led to the significant growth rates that China has recorded in the past four decades. While the economy is well-placed to adapt to changes, a few threats like protectionism, climate change on a long coastline and a population facing water scarcity threat still exist.
China with a GDP of $14.14 trillion in 2019, accounts for 16.38% of the global economy GDP. Meanwhile, in early 2020 U.S. and China entered a trade deal involving partial rollback of past tariffs and pause in additional tariff hikes in the first phase.
As per IMF estimates, China’s economy is estimated to grow at a marginal 1.2% in 2020. Despite the country recovering from the pandemic sooner than expected, for a complete economic recovery an unlikely revival of U.S. demand is necessary.
Post the 2008-2009 financial crisis that the world suffered, Japan was the only major advanced economy who recorded negative economic growth in 2008 and in 2009 continued to report a dip. Major dent to the economy was due to the significant impact on its exports. Japan’s total exported goods accounted for 12.3% of its overall 2019 GDP.
As Prime Minister Shinzo Abe prioritized to bring the economy out of deflation in 2012, the initiatives were called Abenomics and Japan’s GDP touched $5 trillion in 2019.
Being the largest economy of Europe and fourth largest economy of the world, Germany’s 2019 GDP stood at $3.86 trillion with 47.4% being dependent on export of goods and services. Thus, in the 2008-2009 financial crisis Germany’s economy was the most fragile and contracted by 5.7% in 2009.
However, in recent times, difficulties like sluggish global trade, declines in export orders and industrial production, continuing trade disputes and Brexit uncertainty have all hampered the economy’s growth. For 2020, IMF foresees the euro area shrinking by 7.5%