The coming world economic slowdown

For the first time since 2009, the US interest “yield curve” inverted last week and investors and economists reacted in near-panic as this is another sign that the US economy will be slowing down and maybe the world economy. The normal interest yield curve would be for the short-term interest rate to be lower than the long-term interest rates because yield is a function of time, i.e. the longer you deposit your money the higher should be the yield.

When this curve inverts, it means that the investors/depositors are worried about the future and would rather place their funds in short-term more liquid investments. This phenomenon came after Germany predicted and accepted that their economy is slowing down and may go into a recession in 2019/2020, the declining trade volume due to the US-China trade war, the 11 weeks of the Hong Kong protests, the major stock market corrections, the unresolved Brexit, the slower economic growth reported by China and developing countries like Indonesia and the Philippines.

The International Monetary Fund, which tracks and predicts world economic growth have revised downward twice their 2019 projection from 3.9% to 3.7% to 3.3% this year, and may revise it further to less than 3% before the end of the year. From a high of 5% in 2010 the world economy has really been on a downtrend, and the political and economic problems, both natural and man-made are not helping. The days of economic growth of some countries in the 10% to 12% are gone and will not be back.

There will be no more “Asian tiger economies” or tiger economies in other continents that will pull up the world’s economic growth. The trade war which is aborting trade globalization is a major cause of this economic slowdown, but there are also the issues of declining population and workforce which shrinks the markets and productivity, and the increasing debt burden of some countries and households brought about by the “quantitative easing” or increasing liquidity and money supply to counter the recession that happened in 2009. These simultaneous moves by many countries/economies synchronized the economic cycles of many countries that the slump in some countries is no longer offset by the growth in other countries.

Economic recession is defined as two quarters of negative growth in a country’s Gross Domestic Product. By this measure, there will be very few countries that will be in a recession in 2019 and 2020. However, majority of the countries will experience slower growth which will be in the 2% to 3%, and some countries will grow at 4% to 5%. This will bring the world economic growth to the 2.5% to 2.9% range which is 1.5% lower than the average of the last eight years. No world recession but definitely a world economic slowdown.

As demonstrated by history, slower world economic growth has political and social implications to the world’s stability and peace. Governments may rise and fall as shown by the Latin American, African, and Middle Eastern countries. The rise of populist leaders who heightens their people’s expectations compounds these problems. While territorial expansionism by strong countries may not be possible at this time, economic expansionism by other means are possible.

A slowing world economy is also counterproductive to financial equality as the economic pie is growing slower and there is less to share with the lower class. This sets back the millennium goals of reducing poverty levels worldwide, and the possibility of increasing national conflicts and persecutions due to uneven wealth distribution. And, a slowing world economy will not be good for the ambitious global solutions to the world’s enormous environmental and ecological problems already confronting us and beyond.