The United States Federal Reserve, although slowly, has started to rise interest rate. Increasing interest rates will become a reality.
On the other hand, the current expansive economic cycle is coming to an end, comparing it to the historic amount of time of other cycles within the country.
The CDS rate have gone up, this indicating high probability of financial default. This comes along with decreasing companies’ benefits, as well as inter-annual production rate, and CAPEX stagnation.
Commodities fares have had more than four years on the roll going down not only in emerging countries, but in developed ones as well.
Baltic Dry Index, although it cannot be linked to economy’s behavior, it is a very good indicator in times of economic upheavals, converging with world trade CPB index, right now is in 2012 rates.
On the other hand, Harpex Index is in 2009 rates, showing that situation is decelerating.
Singapore and China
In 2008, Singapore was the first world economy to announce its recession. Currently, that economy is decelerating, like global trade is doing, if its GDP is taken into account.
China’s stagnation is slowing down global growth. Commodities fares fall (with subsequent economic slowdown within commodities producing and exporting countries) and developed countries imports fall, along with China’s growth model change, is giving this stagnation. Its debt’s increase must also be added.
Forecast and solutions
In previous posts, Global Economy in 2020 and 2016: Uncertainty and Economic Deceleration, an analysis about a set of key facts that are taking place was made.
All analyzed factors previously seem to be indicating that the two most powerful economies, USA and China, are decelerating and suffering stagnation, one more conscious about it and another one not at all.
This could lead towards an early recession of both economies, it could become contagious and lead towards a global recession.
In 2007, few were brave enough to point out about entering a 5+5 complicated cycle. 5 years of deep recession and 5 years of stagnation, with the development of new growth models, recovering sooner or later.
Taking these previous indicators into account, that needed and urgent decision hadn’t had all the required development and has not been largely implanted. Therefore, getting out of the crisis will take longer indicating that 2017 will not be a good year.
International organizations aim at lower global growth rates, indicating that until 2020 we will not be ready to create a growing scenario.
Some macro solutions:
- China should accelerate its economic pattern change, to recover faster and grow within previous rates between 8% and 9%.
- Developing countries should start urgently a new path towards growth models to improve and strengthen their productivity and competitiveness (the USA expects growth rates up to 2.3% between 2016-2020, but Russia will still be under recession with a -0.7%, improving towards 1% in consequent years).
- Emerging countries should adopt a model and leave behind being so dependent on basic commodities, so they could turn around deceleration to empower those economies that are growing.
- Geopolitical tensions should diminish.
- Restrictive cycle, with interest rate risen by Federal Reserve, should not slowdown growth.
These questions to improve the plain scenario which are being faced have all a common central strategy based on innovation, education and technology.
These foundations will make possible to face the upcoming world and operate within the international scenario in a more competitive way. If this does not take place, recovery will just take longer.