The year 2020 is shaping up to be a not very good year in terms of global economic growth. The pessimistic forecasts of international institutions and organizations with regards to world economic growth expectations are leading to a downgrading of projected growth numbers.
China, US and the Fed
The coronavirus outbreak in China has now spread to multiple countries around the world. It is now very clear what sort of threat this epidemic, which is currently present in 81 countries across the globe, poses to the world economy.
Since this epidemic first spread primarily in China, the second largest economy in the world, it was inevitable that it will adversely impact global manufcaturing and trade.
Due to the fact that China boasts a 16 percent share in the world economy and 14 percent share in global trade, this will further escalate the negative impact of this epidemic on global economic growth.
The manufacturing problem in particular that will occur due to China’s impact on supply chains and the fear, loss of confidence and panic that it will trigger poses a significant risk for the global economy.
So much so that for the eighth time in its history, the FED has, for first time since October 2008, at the height of the global economic crisis, reduced interest rates by half a point.
In other words, one can’t understate how urgently needed this step is in terms of preventing another global economic crisis.
The FED slashed interest rates to 1-1.25 percent at its most recent emergency meeting. The reason behind the interest rate cut was aimed at eliminating the risks facing economic growth, especially trade and tourism, due to the coronavirus outbreak.
For that reason, preventing further possible damage to the economy and accelerating economic activity has been the top priority of central banks.
What is the global economic growth forecast?
The coronavirus outbreak is no longer a problem that is confined to China and a handful of other countries. This epidemic is now a major threat to the global economy.
Due to this, global economic growth expectations are revised downward.
In the report titled "Coronavirus: The World is at Risk" published by the OECD, the global economic growth forecast was slashed from 2.9 percent to 2.4.
Taking into account the fact that the global GDP in 2018 stood at 84 trillion dollars, it can be clearly seen that the 0.05 percent slowdown is far too high for the world economy to sustain.
Meanwhile, if the coronavirus epidemic continues, the contraction of the global economy is set to increase even further.
Perhaps coronavirus is being singled out as a major risk, but that shouldn’t blind us to the impact of trade wars and ongoing uncertainties regarding Brexit, which were among the existing risks. The World Bank, on the other hand, published its “Global Economic Outlook” report, lowering its 2020 world economic growth forecast from 2.7 percent to 2.5 percent.
Therefore, we are entering a period in which especially tax reductions and publicly-supported expenditures become more important for the economic growth of all countries, in order to eliminate possible demand decreases caused by central banks to be effective amid this process and the uncertainties it brings with it.