Markets May Be Entering a Lost Decade for Global Economic Growth

Markets could be entering a 'lost decade' for global economic growth as financial shocks could slow the economy and, thus, cause productivity to decline. This is the conclusion of a recent World Bank report which finds almost all factors responsible for economic expansion and poverty reduction since the 1990s are diminishing.

1. China’s slowdown

According to The Atlantic Council's report released last week, markets may be entering a "lost decade" for global economic growth due to China's slowdown. The world's second-largest economy has been struggling for years to expand at double-digit rates and its population is aging rapidly. Furthermore, its dependence on debt-heavy investments in real estate and infrastructure have reached their limit, leaving many companies and local governments near bankruptcy.

Due to slowing economic growth in China, the Chinese government has begun to scale back its ambitious growth targets. This year, GDP is expected to expand only 3.5% - half the official 5.5% target.

A slower economy in China means it will become less competitive on the global market, potentially making it harder for its companies to increase revenues and profits. Furthermore, a slowdown could indicate that China cannot produce as much of what it consumes, potentially cutting demand for its exports.

Experts predict that China's economy can still sustainably grow at a high rate in years ahead, regardless of any challenges it may encounter. How much growth China achieves will depend on how it adapts to its new priorities and President Xi Jinping's policies.

At present, China remains the world's largest economic contributor to global growth. To maintain this role, the economy must rebalance its current account surplus so it no longer runs a trade deficit. Furthermore, Beijing must halt its severe credit growth slowdown which is leading to defaults across numerous asset classes.

Analysts noted that China's economy has slowed due to several reasons, such as a collapse of its housing market and drought-induced water shortages. These issues are undermining consumer confidence and weakening growth within the domestic market, they added.

Although the Chinese government has implemented a series of measures to stimulate the economy, these efforts haven't quite delivered results. Some analysts estimate that some companies have abandoned China altogether or are drastically cutting back on their spending.

2. Russia’s war in Ukraine

Markets could be entering a "lost decade" for global economic growth due to financial turmoil, with an intensification of the conflict in Ukraine and rising commodity prices likely to hinder expansion.

Russia's invasion and annexation of Crimea in Ukraine have ignited widespread fears that Moscow will use its vast military and political capabilities to expand further into Western Europe and beyond. In the weeks since, a series of attacks against Ukrainian forces and infrastructure have left much of the country in ruins, creating an epic humanitarian crisis which will take years to resolve.

Ukraine has demonstrated strong resistance, yet has been unable to defend itself against a resurgent Russian military that uses indiscriminate attacks and other methods to cut off supplies. This has forced the government to change its strategy; focus is now being put on fighting the conflict in the east of the country rather than border protection.

As the conflict intensifies, a range of risks will emerge: high inflation, Russia's weakening economy and reduced trade ties with the United States. It could also cause an alteration in defense alliances, potentially leading to Ukraine losing its status as a full member of Nato.

Moreover, the increased costs of energy, metals and food will be felt across a variety of economies, particularly those which depend on imported fuels and commodities for growth. These include emerging markets like Brazil and Argentina where tourism may decline due to sanctions; as well as Europe where many countries have become net importers of oil and gas from Russia.

Inflationary pressures, already high in some countries, will remain elevated due to rising global commodity prices. This could dampen growth in China, Japan, India and other emerging markets as well as in the European Union which relies heavily on Russian energy imports for its expansion.

This week, the IMF and World Bank revised their forecasts for global growth downward, warning that Russia's conflict in Ukraine will have an extensive effect on prices while creating significant policy challenges. They predicted growth would be weakened across most developing economies - particularly those heavily dependent on energy or food imports.

3. The coronavirus pandemic

The coronavirus pandemic that began in Wuhan, China in late 2019 poses a major threat to global economic growth. While global GDP grew at an annual average of 4% between 2012 and 2016, this recession may prove more devastating than past outbreaks such as SARS virus in 2003 or H1N1 flu in 2009.

The World Health Organization estimates that COVID-19 has already cost the global economy $375 billion per month, a figure which could rise to $4 billion as the virus spreads further. This has prompted the WHO to declare COVID a public health emergency of international concern, providing more financial support and assistance to developing countries.

Though many may mistakenly think the seasonal flu is similar to COVID-19, the Centers for Disease Control and Prevention (CDC) reports this novel respiratory disease to be far more dangerous and deadly. In fact, estimates indicate in the first three months of 2021 alone, it has claimed more lives than heart disease did during its first three months.

Coughing, sneezing or speaking are the primary methods by which this illness spreads from person to person. Since it's highly contagious, the Centers for Disease Control and Prevention (CDC) suggest wearing masks in order to protect yourself and prevent the spread of the virus to others.

This is especially crucial in regions of the world with limited access to vaccines. The Centers for Disease Control and Prevention are teaming up with Moderna, who has developed an experimental vaccine against COVID-19 virus, to test it in the United States.

But until it can be widely adopted, the coronavirus pandemic is expected to keep disrupting global economic growth. While some markets are expected to rebound in the third quarter, other economies will continue facing hardship, according to economists.

One way to help is by praying for those affected by the crisis, their families and communities. Ask God for comfort and healing, as well as peace in those who mourn.

Another way to help is by contributing money to programs that assist families, schools and other organizations with their children's basic needs. Your generosity can provide food, water and medical attention for vulnerable kids as well as a secure place for them to stay during times of crisis.

4. The financial crisis

The global financial crisis of 2007-2009 was a devastating blow for economies around the world, causing some of the deepest recessions since the Great Depression. Millions lost their jobs and homes during this period, and economic recovery was much slower than in prior recessions that weren't linked with a financial crisis.

The crisis was caused by banks printing too much money and using it to inflate house prices and gamble on financial markets. Banks create new money through loans made to businesses and consumers alike.

Money circulates in the economy and pays for goods and services. Unfortunately, when this process runs too long, it could cause an economic bubble to form, leading to recession as people may find themselves unable to purchase essential items.

Banks can then stop lending to the market, leading prices to decline. This creates a banking panic in which people begin withdrawing their deposits.

In response to the crisis, regulators tightened their oversight of banks and other financial institutions. Furthermore, they created new global regulations that make it harder for banks to take risks and distribute them across the financial system.

Therefore, many global banks have had to reduce their leverage and use more reliable funding sources that won't cause a recession in the economy. They must also assess each loan's risk level and predict whether borrowers will repay it.

These changes have prevented a repeat of the global financial crisis and shielded the economy from an extended recession that could have had devastating effects across the globe.

The global financial crisis has had a profound effect on all major advanced economies. Governments were forced to take drastic action in order to prevent bank failures, thus averting a full-scale global depression.

One of the most frequent forms of crisis is asset-liability mismatch, which occurs when banks' short-term liabilities (like deposits) exceed their long-term assets (like loans). This could lead to a run on the bank making these loans, leading it to lose money on those investments and ultimately forcing it out of business.