Global Economy and the New Year Worries

  • 29 December 2013

Global economy witnessed several highs and lows during the year 2013. Some of the major economies gained significant momentum during the year with the US and Japan registering growth rates higher than previously expected. They also managed to achieve relative progress on the unemployment and sovereign debt fronts. Other major economies came under pressure as a result of the crises and its related implications. A case in point is the European economy, which continued to suffer the pressures of government debt and high unemployment. To make matters worse, the European Union lost its premium credit rating because of the differences within its member states on EU budget for the New Year.

On the other hand, the year 2013 was anything but perfect for emerging economies. Most notably, the BRICS countries – Brazil, Russia, India, China and South Africa – came under heavy pressure. This triggered flight of capital, devalued local currencies and reduced surplus in trade balance of some economies. These were in addition to the other negative fallouts on these economies since the beginning of the global financial crisis. As a result of all this, growth slowed down in these countries, especially in China, which registered the lowest ever rate of growth in a decade.

However, the year 2013 was not totally negative for the global economy. According to International Monetary Fund (IMF) estimates, it managed to achieve a net growth of 2.9 percent – the highest since the global financial crisis began. Improvement in the condition of some major economies has been credited with this growth and also positive trends in developing countries, especially those in Africa. Private investments around the world have also played its part in stimulating growth by re-investment in financial portfolios, real estate assets and – to a lesser degree – in the industrial sector.

This trend has been reinforced by rising confidence in the international economic situation in general. Some regional economies and trading blocs have played a key role in stimulating world economy. One significant example is the Gulf Cooperation Council (GCC) economies, which managed to survive the ill-effects of the global financial crisis and registered growth of no less than 5 percent, riding on the wave of local developments such as government spending and improved of individual income, in addition to stable international oil markets.

It is believed that these factors will continue to play its part in the year 2014, especially during its first quarter. This is likely to push growth rate of the global economy to 3.6 percent, provided the US and Japan maintain growth levels that started in 2013, European Union economies are able to contain its crises, and emerging economies inch their way out of slowdown. Those are going to be the factors to worry about.