A bird’s-eye view of the economy offers info on looming threats

Living in a fast-paced media environment, our attention is rapidly directed from one crisis to another. The news cycle is turning over quickly. It is extremely difficult to determine what will occur in the world and how it will create immediate and direct impact in our lives.

Because of this, it is helpful to take a step back. Specifically, it is a useful exercise to analyze the actual state of the global economy and some of the top threats that can disrupt its current direction. 

The global economy: Where are we at?

{mosads}Going beyond press headlines, the global economy is doing well, although it hasn’t been performing as well compared to recent years.

According to the International Monetary Fund’s (IMF’s) latest data, global economic growth is expected to hit 3.3 percent this year. This is slightly down from last year (which achieved growth of 3.6 percent), but the rate is expected to rise to the 3.6 percent rate in 2020.

The IMF also found that financial conditions throughout the world remain accommodative — even though there has been some variability over the past several quarters.

The global unemployment rate continues to fall, and growth rates have risen to their potential in many developed countries. In particular, East and South Asian countries are performing very well, and the growth in exporting commodities for these nations is recovering to levels that we saw several years ago.

The economies of these nations are experiencing strong per-capita income growth, and economic activity is being driven primarily by core industrial and urban regions, with rural and “peripheral” areas seeing slower growth rates.

Key threats 

The global economy, while not growing at an ideal pace, is still showing signs of strength. However, there are obstacles on the horizon that could slow down growth and lead to economic malaise.

While there are many unknowns that could send the global economy into a tailspin, three key risk factors stand out.

U.S.-China trade war

First, there’s the U.S.-China trade battle. As of today, the U.S. has imposed three rounds of tariffs on Chinese goods that have totaled more than $250 billion.

Recently, there have been several developments indicating that the trade battle may be coming to an end. A source familiar with the negotiations said that both sides plan to have two more rounds of face-to-face talks.

Some of the sticking points include the protection of American intellectual property and whether the American government will remove tariffs on Chinese goods. The hope is that these issues can be agreed upon in these two upcoming meetings before President Trump and Chinese President Xi Jinping meet in-person to end the conflict. 

Ultimately, there is no guarantee that the trade tensions will be resolved soon despite recent developments, which have been promising. If it’s not resolved, the Trump administration may decide to impose additional tariffs, which could strike more fear in investors and slow down global growth.

Investors have high expectations that a trade deal is near, so a delay or a negative development in the talks could shake the global economy. 

Brexit

Brexit was suppose to occur on March 29, yet the U.K. is still in the EU. What’s going on? 

Putting it simply, it is because the U.K. and other European countries have not agreed on the Withdrawal Agreement that governs how the U.K. will leave the European Union.

Members of the U.K. Parliament have rejected the Withdrawal Agreement three times (the most recent being on March 29), forcing Prime Minister Theresa May to ask EU leaders to delay Brexit. Ultimately, the new deadline for Brexit is Oct. 31, although the U.K. can leave the EU earlier if a deal is agreed upon by U.K. Parliament.

Markets haven’t taken kindly to this uncertainty over Brexit. The economic implications of Brexit will vary depending on how the U.K. leaves the EU.

Moreover, varying “hard Brexit” departures, according to the RAND Corporation, are likely to take a toll not only the U.K., but on the EU and rest of the world, as well. The best-case scenario, according to RAND, is for the U.K. and EU to work together to achieve an open trading and investment relationship after Brexit.

By contrast, adopting a “no deal” Brexit with future U.K. trade governed by World Trade Organization (WTO) rules would be economically damaging to both the U.K. and EU. This summer, it will be worth monitoring future political developments within the U.K. in order to see how “hard” or “soft” Brexit will actually be. 

Qatar blockade

One additional threat to the global economy is the continuing Middle East blockade of Qatar. Since 2017, Saudi Arabia, the United Arab Emirates, Egypt and Bahrain have severed relations with Qatar and established a blockade against the country.

The blockade has severely disrupted shipping channels and airspace in the region, forcing Qataris to live in a more challenging economic environment.

{mossecondads}Even though Qatar has adapted to the blockade, its removal would free up trade and facilitate even more foreign investment within the region. Ultimately, with some of the world’s largest oil and gas producers located in the region, it would lead to more energy exports, which would benefit many nations around the world.

Therefore, investors and market-watchers should monitor the blockade as its resolution or continuation will continue to influence global markets. 

The global economy is influenced by number of variables, from the decisions of economists in Washington, D.C. to climate change. It is an amorphous organism that investors and economists try to predict. The three threats listed above have shown in the past and continue to promise to have an impact on the global economy. 

Ryan Patel is a senior fellow with the Drucker School of Management at Claremont Graduate University. He’s the former vice president for global development of Pinkberry. Follow him on Linkedin, Twitter and Instagram @ryanpatelglobal.