Current Threats Facing the Global Economy
It is generally expected that the global economy will continue to remain volatile and vulnerable to upset throughout 2016. With new threats seemingly emerging regularly, it can be difficult to keep track of what we should be concerned about, so here is a breakdown of some of the current issues generating international buzz.
The World Economic Forum recently conducted a survey of 750 experts, which concluded that climate change is the single biggest threat to the economy in 2016; the first time in the 11 year history of the Global Risks report in which the environment topped the list. The reason for such high concern lies in the impact it has on other important factors, such as food shortages, the water crisis, mass-scale migration, restrictions in economic growth and security risks.
The ongoing refugee crisis, terrorism and extensive global displacement lead to increased political instability and make it difficult for firms to make crucial strategic decisions regarding employment, the supply chain, etc. That’s not to mention the potential financial stress on the countries taking in the largest numbers of migrants in search or better opportunities and refugees fleeing conflict and natural disasters.
Falling oil prices continue to cause much concern. The slump has been blamed largely on issues surrounding an imbalance in supply and demand, with US production rising so much in recent years that it led to a cut in imports. Needing to find a way into new markets, the firms that once relied on delivery to the US cut prices, causing a ripple effect elsewhere.
The problem is still evident, with Brent oil prices recently falling below $30 a barrel for the first time in well over a decade, and it is figures like this that are triggering a fall in risk appetite, directly affecting stocks and equity markets, and thus leading to shifts in Forex, namely a fall for commodity units such as the Australian and Canadian dollars, in favour of the Euro and US dollar. This is a prime example of how changes in one market can directly affect another.
The potential exit of the UK from the EU
With a referendum now planned for June that will decide the fate of the UK’s place within the European Union, fears surrounding a possible exit have led to warnings of a potential ‘shock factor’ for the global economy at large, with anxieties about the international impact on markets and trading opportunities causing worries about the possibility of further instability later down the line.
Poor economic growth
Economic growth continues to be slow in many markets, but particular concern lies with China – who have the second largest economy in the world – as they are experiencing their slowest levels of growth in 25 years. Being such prominent market leaders, this causes unease throughout the world, but experts within the country insist that the fundamentals upon which their economy is based remain strong and that growth could increase throughout the year.
Needless to say, there are many other threats to the global economy, and the biggest take-away should simply be how complex a state the world is currently in. Recovery may well be underway, but it’s evidently going to be a long process, with the need for constant adaptability in direct response to markets that still remain fragile.