While the world is still recovering from the aftermath of the economic downfall that struck the global markets in 2008, less than a decade later, it is quite probable that the U.S., along with the rest of the world, is heading straight into yet another recession.
There have been numerous predictions since before the beginning of 2016 for an impending depression in the world economy. The World Bank and the IMF predicted low GDP growths for developing countries after which they revised their expectations for global growth to accommodate a downward trend.
When evaluating economic drivers, most analysts use the ‘ceteris paribus’ rule in order to keep each factor and its risks independent from the other factors. However, in the real world scenario, things are different. Each economic driver is connected to the other and the economic conditions we face are usually a result of the collective impact of these drivers.
It’s all about connecting the dots!
What’s Happening Around the World?
Over the past several decades, China has remained the second biggest player in the world economy, right behind the US. It’s continuously growing high GDP values leave no doubt for economists who predict the Chinese economy would soon surpass the US economy as the world leader.
However, the capital controls imposed by the Chinese government have left fewer investment opportunities for the growing middle class in the country to create new wealth. This domestic bubble prevents further investment within the economy that will eventually drag down the Chinese economy and others associated with it.
On the other hand, the European economies face a currency dearth that makes them fragile. The entire European Union showed meager growth of just 0.3% in the fourth quarter of 2015 and this year hasn’t been so great economically for them either. With Greece defaulting, Finland and Italy posting negative growths, and France and Portugal economies becoming stagnant, the future prospects of growth seem grim.
For these top players of the global economy, along with the US, banking systems are crucial facilitators of government spending, credit supply, consumption, and investment – and often these systems are relatively larger than the country’s economy itself. With banks around the world being substantially leveraged makes the banking system highly susceptible to even the smallest disruptions in the economy. What we’re looking at here is a possible banking collapse in the global front as the pieces of a financial crisis gradually start falling into place – and the US is no different.
Moreover, OPEC in its attempt to topple the US shale industry decreased the international oil prices that consequently led to a decline in the oil exports of developing countries like Columbia, Saudi Arabia, Russia, and Brazil.
What’s in store for the U.S.?
With all of this happening across the world, it is important to observe the workings of the US economy separately. After the great depression that hit the world economy in the worst possible ways, politicians took charge of drafting and implementing policies that could help the country pull itself out of the aftermath of the situation.
The increased government spending and strict stipulations may have helped the US economy survive the recession back in 2008, but the same money solutions are now leading the country into the next crises. The current economic data shows trends similar to the ones that appeared before the 2008 depression.
- The Commerce Department reported a fall in the US factory orders back in December 2015.
- The US exports witnessed a downward trend
- There is a decline in the corporate profits
- There was sluggish growth in the real GDP of the country
- The retail and wholesale sales have taken the maximum dip since the last time that is right before the previous recession.
Besides these factors, the officially reported rate of unemployment (4.9%) in January 2016 does not account for the people who have taken up part-time or temporary jobs in order to make ends meet for them. When one includes them in the statistics, the real unemployment rate for the country stands at a good 10.5%. Also, there have been evidences of the real wages becoming stagnant that point towards a weakening economy.
But the best thing about the economic cycle is that each recession is followed by an uptrend and subsequent economic boom, and the US economy, according to experts, is still resilient enough to withstand and overcome the shocks of another financial crisis.
For those closely observing economic data trends and patterns closely, this might not come as a surprise. The signs of a weakening global economy are now increasingly becoming evident with the collective troubles persisting for the major players in international economy.
Recessions are a regular feature of the economic cycle and they do return every now and then to haunt the markets and investors. No matter where in the world it triggers, recessions have the power to impact. However, prior knowledge and relevant precautionary measures can greatly help individuals and economies to cushion the overall impact of economic recessions.