There were even some ideas posturing that the world is facing into a “desperate decade”.
In a recently published article, Nouriel Roubini, Professor of Economics at New York University, warned of a host of adverse factors that are pushing the world into a “Great Depression”. In particular, financial risk is a huge problem at present. Excessive government and private sector debt, trade restrictions and rapid automation are three of the major factors threatening to permanently destabilise the world economy.
According to economic experts, after the financial crisis of 2007-2009, the imbalance and risks hindering the global economy were serious. However, financial issues at present and in the near future will be even more severe. The political response to COVID-19 has led to a sharp increase in budget deficits at a time when public debt in many countries is already very high. Many families and businesses have lost income, which means the debt of the private sector is increasing, and this can lead to default and bankruptcy. In fact, mass bankruptcy has occurred in the US and this is particularly serious for the shale oil and gas industry. Since the beginning of the year, 17 manufacturers with a total debt of about US$14 billion have filed for bankruptcy, including Whiting Petroleum, one of the largest US shale oil companies. In addition to debt, the risk of deflation is becoming greater for economies in the context of the current COVID-19 crisis having created a large surplus of goods and machinery and a high unemployment rate, while prices of raw materials like oil and industrial metals have plummeted. The disease has also triggered an explosion in health spending. The aforementioned factors are increasing the likelihood of deflation due to debt as well as the insolvency risk, putting pressure on the banking system.
Another big problem for the world is the restructuring of global supply chains in the context of strategic competition between the US and China taking place fiercely and the pandemic causing countries to strengthen, adjust and restructure supply chains. Recent moves suggest that US President Donald Trump’s administration is pushing for an initiative to bring global industrial supply chains out of China, as Washington considers imposing new tariffs and sanctions on Chinese goods. White House trade adviser Peter Navarro said that President Trump has signed an executive order that could restrict the imports of components for the country’s power grid from China, and would soon issue a private one requesting federal agencies to only purchase health products manufactured by US companies. In the meantime, Foreign Ministers of the Five Eyes Alliance countries discussed new plans to develop important technologies and reliable supply chains. According to the Foreign Ministry of Canada, the five participating countries agreed on a common priority to ensure the stability of supply chains, as well as to purchase personal protective equipment and medical supplies. It should be added that the ongoing COVID-19 crisis has made the solidification of important supply chains an “urgent priority” for all nations. Economic experts warn that global supply chain restructuring will take place in the coming decades and have varied consequences. For example, to counter supply chain shocks, businesses in developed countries will shift production from low-cost areas to higher-cost domestic markets, and accelerate the pace of automation, thus resulting in increased unemployment. This trend could also promote a wave of xenophobia. In addition to the aforementioned issues, another major challenge that could push the world into crisis is the issue of population ageing. Many experts have called this a “time bomb” of demography in developed economies. Most developed countries and many developing countries will face an ageing population in the next decade. The COVID-19 crisis has forced countries to spend a significant sum on the health system. Covering expenses for healthcare and elderly care costs will increase the debt of the health system and create a significant budget burden for social security in countries. In addition, analysts predict that in the next decade, environmental changes and more climate-related disease symptoms will occur more frequently and be more serious. It is not even ruled out that crises like COVID-19 will be repeated and cause much greater devastation on economies than financial crises.
According to analysts, in the next decade, more effective leadership and technology will be an important “fulcrum” for the world to deal with challenges. However, to have a “happy ending”, countries, in the immediate future, must unite to overcome the current COVID-19 crisis. In the medium and long term, all nations, especially the major powers, should cooperate in effectively administering global issues, thereby together avoiding a “desperate decade”.
