The global economic system is trying to avoid a new financial crisis

The global economy has gone a long way since the global financial crisis that hit all major financial markets around the world, causing a global recession. The policies of major economic countries, including non-conventional monetary policies, contributed to the gradual improvement of the global economy, and emerging economies succeeded in overcoming the initial stages of the crisis due to Chinese investment.

Although a number of developed economies have stabilized, and a number of countries have undertaken significant reforms in the financial and business markets, the global economy lacks a range of structural reforms that will prevent the recurrence of global financial crises by enhancing productivity and attracting investment permanently.

"The 10-year report since the global financial crisis: uneven progress and structural disruptions", published by the Brookings Institute's Global Economic and Development Program, is important for authors Karim Foda (Associate Fellow of the Institute) and Eswar Prasad Professor at Dyson College at Cornell University, a fellow at the Brookings Institution and a co-researcher at the National Bureau of Economic Research). The authors assessed the progress made by the advanced and emerging market economies since the global financial crisis.

World Economic Indicators

The authors cited a number of indicators, which, in their entirety, highlight the current features of the global economy, which can be summarized as follows:

First: Gross national product:

According to the authors, the US economy has a distinct place among developed economies, but the US gross national product can not be viewed in isolation from China, India, Japan and Germany in recent years. The paradox is the vast gap between the gross national product of the United States on the one hand and the per capita output on the other.

In parallel with the authors, a number of international reports show an increase in US gross national product. For example, the Monetary Policy Report of the Federal Reserve Board of Governors, which showed a 2% increase in GDP in the first quarter of 2018. He also pointed to higher economic growth rates in the second quarter of this year. Although consumer spending slowed down earlier in the year, it was soon re-fueled by employment policies, increased household wealth, disposable income and growth in business investment.

Second: the separation between the stock market and the real economy:

The US stock market has outperformed emerging and advanced economies over the past decade. Equity markets in most advanced economies have seen major increases in the last 10 years and have not been affected by trade wars, political turmoil and other shocks that will cause volatility in those markets, unlike bond markets.

In the same vein, Lillian Hoof, and other authors in their book Global Economy Today: Key Trends and Developments, confirm that stock markets are already demonstrating an improved investment climate and have resulted in a doubling of corporate profits at high rates in the United States And Japan. Equity markets have also gained strength in all OECD countries, boosting confidence in these economies. The stock market is naturally affected by a number of variables, namely: jobs, oil and the dollar, but none of them has yet experienced sharp fluctuations in that market.

China and India have made remarkable progress among developed economies in terms of growth rates, and gross national product has doubled since 2007. The paradox, according to the authors, is that the US stock market has outperformed its counterparts in China and India, 18%) in the past decade. Which the authors attributed to the retreat of Chinese stock markets from their level in 2007, which can be seen in the context of the suffering of financial markets in a number of emerging economies, except for the US stock market.

Third: weak investments and productivity growth:

Despite the good growth and strong performance of stock markets in a number of countries, the authors see limited investment and productivity growth given the advanced stage of the global business cycle. Over the past decade, despite the steady increase in real fixed investment in most developed economies, investment in both Brazil and Russia has declined. Compared to the pre-global financial crisis, real fixed investment saw high rates in both China and India, due to the recovery in low productivity growth, which in most economies remained below pre-crisis levels.

Fourth: Labor Markets:

According to the authors' statistics, unemployment rates in the United States are below 4%, much lower than in 2009, when they reached 10%. However, cumulative employment rates (6.6%) were higher than pre-crisis levels. Employment rates - the proportion of total employment compared to the working age population - remain below pre-crisis levels. By contrast, these rates are increasing in developed economies, compared to pre-crisis, especially in Japan and Germany.

Fifth: the end of deflation and inflation:

The risk of deflation, which lingered for a long time, especially in the Euro-Zone and Japan, has eased, and inflation rates (1-2%) in advanced economies have increased, naturally, in most emerging markets.

The annual economic outlook this year is overshadowed by the risks of rising inflation, posed by challenges to US monetary policy and the FOMC. Inflation began to take an upward trend in 2017, especially in March, and has been hard to fall since then, and is expected to increase in 2018. This is attributed to rising labor costs, energy prices, improved global oil demand, and rising Input costs worldwide. The weakening of the dollar will not only result in higher import prices but will also cause inflationary effects abroad.

Prospects for the global economy:

The global economy has gone a long way in the last 10 years, as the more developed economies have achieved stable growth rates, and China and India have maintained growing and strong growth rates and contain the risks of deflation and inflation. Overall, although considerable progress has been made in reforming financial markets, the limited and incomplete nature of structural reforms in many economies leaves open the possibility of future financial and economic volatility, especially in the context of poor productivity, which is a challenge to long-term GDP growth .

Developed economies continue to be exposed to the risks of financial and monetary flows, along with public debt, which has increased sharply following the global financial crisis. Emerging market economies all share declining public debt levels, increasing foreign exchange reserves and adapting policies to deal with internal and external shocks.

On the contrary, some of these countries suffer huge and unprecedented levels of foreign debt, making them subject to global monetary fluctuations. Economic reforms in the areas of labor, production and financial markets in some countries have also been constrained by a series of economic and geopolitical crises and pressures. May loom again.

Consistent with the authors' vision, the annual report of the Bank for International Settlements confirms the relative and steady improvement in the global economy over the past 10 years, surpassing the collapse caused by the global financial crisis. But the report adopts an optimistic vision of the global economy, unlike the pessimists' vision. According to the report, interest rates have fallen, and unemployment rates have fallen to the lowest levels in a number of countries. The projected central scenario for the global economy remains its growth. Hence, in the light of the steady improvement, the sustainable development of the world economy has become an imperative.

In contrast to that optimistic outlook, Steven Pressman and Robert Scott, in their study "Ten Years After the Crisis: The Lost Decade?", Expect a massive recession no less serious than the Great Depression once the US economy stops growing. Economic history refers to the possibility of other economic and financial crises. This is evidenced by the American economic history of repeated economic crises.

There are a number of reasons for concern about the US recovery from the global financial crisis, foremost among which is the low average household income. The standard of living of middle-income families in the United States is 6.4%, lower than in 2007. Furthermore, , Household debt levels are rising compared to current income levels.

A gradual recovery

The world economy has witnessed a gradual and gradual recovery in the past ten years; however, this is only a period of relative calm, for structural reforms that will provide national economies with resilience to shocks and high rates of economic growth to prevent a recurrence of financial crises Which is rich in the global capitalist system.