Global Economy - Future Risks
Highlights by David Willden
One of the biggest problems we see, as we look ahead at the global economy, is
the differing economic growth rates. Some regional and national economies will
grow at fast rates and others will lag considerably. An important question is,
will the contrasting economic growth rates lead to increased volatility and
ultimately result in a global economic collapse?
As the world economy expands, the US will have less worldwide economic influence. There will not be a single hegemonic economic power. Instead economic power will be shared among several national and regional players.
Can the various players develop a common vision and strategy? Or will we see more turmoil?
The developing world today provides more than 50 percent of global economic growth and 40 percent of global investment. Its contribution to global investment growth is more than 70 percent.
The world’s economic outlook will increasingly depend on the economic progress of the East and South.
China’s contribution is now one and a half times the size of the US's share. In the World Bank’s baseline modeling of China shows a slowing of its economic growth by 2025. However, its total grow will still far exceed any other economy.
Emerging market demand for infrastructure, housing, consumer goods, and new plants and equipment will raise global investment to levels not seen in four decades. Global savings may not match this rise, resulting in upward pressure on long-term interest rates.
It is unlikely that we will return to the economic growth rates that occurred prior to the 2008 financial meltdown or recession. Additionally, nonfinancial sector debt has doubled since 1980. It is now 300% of GDP. Studies show a strong correlation between high debt rates and recessions. Also, great debt leads to longer recovery times. Unfortunately, the major Western economics have just begun to reduce their debt burdens.
The McKinsey Global Institute has estimated that a Greek exit from the euro zone could be eight times more damaging than what sparked the 2008 financial crisis - the Lehman Brother’s bankruptcy. There are major issues on several fronts that need to be restored over a decade for stability to resume in Europe.
During the 1930s’ Great Depression, there were a higher percentage of youthful populations. This helped the Western countries to bounce back quicker than they would have otherwise. Western countries today won’t have that benefit
Of the Western countries, the United States is in the best position. Its workforce is projected to expand over the next decade. Economic growth will need to come from business improvements that bring about greater efficiency and productivity rates. A critical question is whether technology can sufficiently boost economic productivity to prevent a long-term slowdown.
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