Will the next global crisis come from the East? - LEVENT YILMAZ

Will the next global crisis come from the East?

While we leave behind a very difficult year for the global economy, we could not say the same for the problematic topics that pose a risk for the economic world order.

We carry many of these risks with us to 2020, especially with regards to the trade wars and the uncertainties created by Brexit.

Taking into account the fact that the monetary policies of the U.S. and European Central Banks proved insufficient, it is obvious that developing countries should manage their economies very carefully in 2020.

No good news from Asia

While we have been focusing on the developments in the West for a while, harbingers of the global economy have started to come from Asia. For example, it is not good news for the global economy that the Chinese economy, which had problems before the start of the trade wars, slowed down further under the impact of the trade wars. China's growth rate fell from 14.2 percent in 2007 to 6.6 percent in 2018. The IMF estimates that China's growth in 2024 will fall to 5.5 percent. This figure is below the 7 percent growth rate announced by Chinese President Jinping in 2014 as the “new normal”. The fact that China, who is not only a big producer but also a giant consumer, is slowing down will negatively impact the rest of the world. Meanwhile, bad news from the East do not stop there. India is also expected to show the worst growth performance of the last 10 years.

The IMF, the Asian Development Bank and the OECD announced that they expect India to grow around 6 percent in 2020. This figure is a downward revision of previous estimates. Moreover, no serious recovery is expected in the medium term and this figure is expected to fall further.

Elsewhere, the Japanese economy has been stuck at an average growth rate of 0.5 percent for a long time. Between 1980 and 2018, Japan's real growth average is only 0.5 percent. Moreover, add to this figure a massive debt-to-GDP ratio of 230 percent. However, if Japan were able to sustain its growth rate between 1963 and 1973, it would have surpassed the U.S. in per capita GDP in 1985 and in 1998 respectively.

Will 'Capitalism' save China?

As everyone knows, China is governed by a communist regime. But the same cannot be said for the economy. In recent years, while President Donald Trump of the liberal U.S. in Davos praised protectionism, Xi Jinping, the President of communist China, took a jab at Trump by extolling the virtues of free trade.

Moreover, China, which has become the world's largest exporter of goods and services, now exports capital. As far as the U.S. is concerned, the export of capital, which is a hegemonic strategy, is also the most powerful weapon of capitalism. The issue of how sustainable China’s attempts to be liberal with its economy is a point of contention. Even if it is sustainable, it is accepted that capitalism is a problem-producing mechanism in and of itself. In fact, it would not be incorrect for us to call capitalism repeating past crises a case of “learned helplessness.”

Non-economic threats for the East

One of the issues that I have been trying to draw attention to in my columns for a while is the rapid shift of the world's economic center of gravity towards the East. This is good news for the East. However, if the process is not well managed, more serious risks await the global economy than the 1997 Asian Crisis. Because the economic size of the countries in the region compared to those days can cause much deeper fault lines in a possible crisis. Inequalities in overpopulated countries such as China and India, and the relatively low income population, are likely to trigger serious social problems and movements. At the same time, these “weak growth numbers” seem to be targeted by competitors of the countries in question. So it is obvious that the region’s states must implement important steps not only economically, but also on issues such as democracy and freedoms. Because, in order to establish economic security, one must pay attention not only to macroeconomic indicators, but also to non-economic threats affecting the economy.


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