November 02, 2017

4 Factors Currently Influencing The Global Economy

This post has been contributed.

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The economy is inescapable. Even if you have zero interest in how money works or moves between nations, the economy still influences almost every area of your life. It influences the houses we buy, the jobs we do, and the future we are trying to develop for ourselves.

As a result, keeping an eye on the state of the global economy is generally a good idea. The world economy is more integrated that it has ever been before. No longer do countries exist as an island, with their economies reflecting the state of the nation and not much more. Countries are now dependant on one another and, to paraphrase an old saying, if a butterfly flaps its wings on one stock market then it can send a country halfway around the world into recession. The global financial crisis of 2007/8 is the perfect example of how the economy is now a worldwide issue rather than limited to each nation and its own finances.

At the time of writing, the global economy is not as healthy as one might hope it could be. There are numerous reasons for this, so let’s delve deeper and see which matters from across the globe are holding back the oh-so-treasured economic growth.

Changing Political Fortunes

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Since the 1970s, the majority of global economies have worked on neoliberal policies. Neoliberalism is generally summed up as free trade between nations and little regulation on that trade. For decades, neoliberal economics were generally accepted as the norm, the standard, and the best way for the global economy to proceed.

However, after years of recessions, turmoil, and the biggest financial crisis in living memory, it’s fair to say that many people are souring on neoliberal economics. The beliefs that are rising in its place vary wildly, which makes predicting the economic outlook all the more problematic.

There has been a resurgence of socialism in a number of countries, most intriguingly in the uber-neoliberal countries of the USA and the UK. While socialism may be thriving on the ground, however, at this point there are few governments with true socialist principles; Iceland and Costa Rica are the most notable examples, but they are not major players in the global economy.

It’s not just socialism that is experiencing a resurgence; many countries have right-wing movements that are winning power and influencing economic policy. Politics has changed, and the global economy really doesn’t like change.

Of the major G7 countries, all still adhere to neoliberal, capitalist principles-- but this seems likely to change. How it will change, and what it will change to, is very much up for debate-- creating an atmosphere of uncertainty around an economic system that has held power for nearly 50 years.

Brexit
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When the UK voted to leave the European Union, the established global consensus slipped on its axis. As a G7 member, the UK has been a part of the European project for 50 years, but a right-wing surge pulled the country out its major trading partner. Many worried what this would mean for the global economy.

The UK is currently in the midst of negotiating its withdrawal from the EU, a process which has to be completed by 2019. Talks, however, are not progressing well. This leaves a huge black mark in the economic picture; as the world’s sixth largest economy, no country is able to ignore the UK’s fortunes-- but no one can predict what those fortunes will be. Some economists predict the UK will slam into a huge recession the moment they officially leave the EU; others believe that the UK will do just fine.

What we do know is that the Eurozone is coping well with the turmoil, while the UK economy… isn’t. The UK hoped that countries would be queuing to agree trade deals with them following Brexit, but this has yet to materialize. When one of the biggest players in global economics faces such an uncertain future, the entire global system may spend the next 18 months waiting with baited breath to see what’s going to happen.

Every Major Country Has A Housing Crisis

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The housing market has always been a major influencer on economies. In fact, it was the collapse of the subprime housing market that brought on the Great Recession of a decade ago. It is therefore worrying to the economic outlook that almost every major country is suffering a housing crisis.

There are many reasons for this. Immigration is a factor; major countries’ populations are continually rising. Another factor is that the super-rich are still buying properties as investments in developed countries; houses which then go unused by the owner, denying housing stock to local residents.

There are still opportunities outside of the more developed countries. Foreign investors may be tempted by the booming housing markets in countries like India and Malaysia, countries where the search for a new property is far easier than it is in the overcrowded developed nations. There are still opportunities in emerging markets, but elsewhere, the housing market is suffering-- which has a rebound effect on the economy as a whole.

Climate Change

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We have long been warned that climate change is a problem for the future; an issue that our grandchildren will have to deal with. However, we are already living in a time when the climate is changing-- which has a huge impact on the way the global economy can function.

There is evidence of a disturbed climate throughout the globe. We know that permafrost is beginning to melt at the poles; we know that the 2017 Atlantic hurricane season has been one of the most damaging on record; we know that the recent monsoons in Asia have been some of the worst ever recorded.

Of course, all of the above are dangers to life, and this should be the primary concern. However, there is no doubting that the changing environment is influencing the economy. As Donald Trump crudely put it, the devastation in Puerto Rico following Hurricane Maria has damaged the US budget. The cost of repairing the damage, helping people, providing relief centers and all the other work involved in clearing the mess left by environmental disasters is taking a huge toll on the budgets of almost every nation on earth.

The obvious solution to this problem is for future investments in slowing or outright halting the horrors that climate change can unleash on the world. At this point in time, however, there seems to be little global appetite to do this. There may be a point when the environmental costs are so severe the issue has to be examined, but we have yet to reach that point, and some of the biggest countries on the earth have outright climate change deniers is their administrations. The change in attitudes may come, but there’s no sign that will be any time soon-- and so the global economy will continue to struggle to cope with natural disasters.

So What Does The Future Hold For The Global Economy?

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Frankly, no one knows!

The one thing that economies hate more than anything is uncertainty, but we live in incredibly uncertain times. The world is changing, and the economic model as we currently recognize it may be on borrowed time. There might be a huge change in global finances on the horizon… or the current blip will be righted, and all will return to normal. The problem is that no one knows what is going to happen.

There’s also little sign of this changing; certainty is a long way off in the future, as the issues outlined above are decades in the making. So hold tight; the global economy might have to endure a few more tidal waves before it returns to calm waters.

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