The global economy is going through a rough patch. 2016 has taken off with some turbulence, which is likely to intensify in the coming months as leading economies, financial markets and the corporate sector battle adverse financial weather. The latest warning about the health of global economy has come from the International Monetary Fund (IMF) which has cut its global growth forecasts for the third time in less than a year. The Washington-based body said the world economy would grow at 3.4 percent in 2016 and 3.6 percent in 2017, down 0.2 percentage point each from the previous estimates made last October. Stock markets are falling and falling, the energy prices have hit the bottom of the barrel and are still falling, and optimism is in short supply. To compound the woes, the Chinese economy is losing steam. The world’s second biggest economy grew at the slowest pace in a quarter of a century, at 6.9 percent in 2015 compared with 7.3 percent a year earlier. The slowdown came a year after the country suffered huge capital outflows, a slide in the currency and a summer stock market crash that created panic.
The most lethal blows have been reserved for the energy market. Brent crude oil dropped to a 13-year low of less than $28 a barrel on Monday after sanctions against Iran were lifted by Western countries, triggering fears of a further glut in the oil market. Iran’s return threatens to worsen the oversupply problem in the market created by the US shale drillers and Opec members with their determination to keep pumping despite plunging prices. The collapsing prices have wreaked havoc with the economies of oil producers, though Gulf countries haven’t been hit so badly due to their huge reserves and economic diversification.
Financial turmoils are nothing new to governments and markets though the pain it inflicts is very huge. Sometimes it takes years to recover, and that too after austerity measures which would upend the lives of ordinary people. Though the growth forecasts are not encouraging, there are no signs of the current slowdown snowballing into a major crisis. While any Chinese slowdown is certain to send ripples across the world, the government in Beijing can be expected to take measures to arrest the slowdown. For example, global stock markets raced higher yesterday on hopes that the shrinking Chinese growth would result in a huge stimulus spending by the government in Beijing.
Oil producers too need to learn the right lessons from the current crash, even if prices shoot up in future. Economic diversification should not remain just a slogan, or an objective that must be pursued gradually, but a priority that must be implemented rigorously.
The global economy is going through a rough patch. 2016 has taken off with some turbulence, which is likely to intensify in the coming months as leading economies, financial markets and the corporate sector battle adverse financial weather. The latest warning about the health of global economy has come from the International Monetary Fund (IMF) which has cut its global growth forecasts for the third time in less than a year. The Washington-based body said the world economy would grow at 3.4 percent in 2016 and 3.6 percent in 2017, down 0.2 percentage point each from the previous estimates made last October. Stock markets are falling and falling, the energy prices have hit the bottom of the barrel and are still falling, and optimism is in short supply. To compound the woes, the Chinese economy is losing steam. The world’s second biggest economy grew at the slowest pace in a quarter of a century, at 6.9 percent in 2015 compared with 7.3 percent a year earlier. The slowdown came a year after the country suffered huge capital outflows, a slide in the currency and a summer stock market crash that created panic.
The most lethal blows have been reserved for the energy market. Brent crude oil dropped to a 13-year low of less than $28 a barrel on Monday after sanctions against Iran were lifted by Western countries, triggering fears of a further glut in the oil market. Iran’s return threatens to worsen the oversupply problem in the market created by the US shale drillers and Opec members with their determination to keep pumping despite plunging prices. The collapsing prices have wreaked havoc with the economies of oil producers, though Gulf countries haven’t been hit so badly due to their huge reserves and economic diversification.
Financial turmoils are nothing new to governments and markets though the pain it inflicts is very huge. Sometimes it takes years to recover, and that too after austerity measures which would upend the lives of ordinary people. Though the growth forecasts are not encouraging, there are no signs of the current slowdown snowballing into a major crisis. While any Chinese slowdown is certain to send ripples across the world, the government in Beijing can be expected to take measures to arrest the slowdown. For example, global stock markets raced higher yesterday on hopes that the shrinking Chinese growth would result in a huge stimulus spending by the government in Beijing.
Oil producers too need to learn the right lessons from the current crash, even if prices shoot up in future. Economic diversification should not remain just a slogan, or an objective that must be pursued gradually, but a priority that must be implemented rigorously.
