5 charts show why the global economy is more vulnerable now

Economy

5 charts show why the global economy is more vulnerable now

Published

4 years ago

February 4, 2020

Harry Miller

Kevin Frayer | Getty Images

Chinese men wear protective masks as they walk in a nearly empty shopping street on February 2, 2020 in Beijing, China

As authorities in China race to contain the spread of a new coronavirus that has killed hundreds, investors are bracing for global economic fallout that some analysts said could be more severe than the SARS outbreak in 2003.

SARS, which stands for severe acute respiratory syndrome, first emerged in China’s Guangdong province before spreading to other countries. The virus claimed around 800 lives worldwide and shaved 0.5 to 1 percentage points off China’s growth in 2003, according to various estimates.

But the new coronavirus — believed to have originated in Wuhan city — has struck China at a time when its economy has grown larger and established greater connections with the world. That means any pressure on China’s growth now would hit the global economy harder than before.

Here are five charts that show how China’s economy has changed since the SARS epidemic.

World’s second-largest economy

Taimur Baig, chief economist and managing director for group research at Singaporean bank DBS, said “the whole world didn’t even notice” when China’s growth slowed by around 1 percentage point following SARS.

“It was just business as usual,” he told CNBC’s “Capital Connection” last week. “Now, China accounts for nearly a-fifth of global growth. China slowing by half a percent would be seismic.”

Services play a bigger role

As with the SARS outbreak 17 years ago, the spread of the new coronavirus is likely to first hit consumer spending. But the decline in consumption this time could be more severe than 2003, some analysts said, especially after authorities shut down much of China in a bid to contain the virus.

Lower consumer spending will pressure China’s services industry, which today account for a larger share of the country’s gross domestic product compared to 2003. That also means any drag from services will weigh more on the Chinese and global economies today.

Tourism spending overseas

Chinese consumers have also been spending big overseas. Since 2014, China has been the largest source country of international tourism expenditure, climbing from seventh place in 2003, according to the World Tourism Organization.

Travel bans and flight cancellations put in place since the emergence of the new coronavirus could curtail Chinese tourism spending overseas. That’s a threat to many economies, especially those in Asia, said Kelvin Tay, regional chief investment officer at UBS Global Wealth Management.

“If you look at Asia itself, Chinese tourism is now a bigger part of the economy for almost all countries,” he told CNBC’s “Street Signs Asia” on Monday.

Major global importer

On the trade front, rising demand within China has made the country the world’s second-largest importer since 2009, data by the World Trade Organization showed.

World’s largest exporter

The virus outbreak could also affect the global economy through China’s exports channel.

China has been the world’s top exporter since 2009, climbing from fourth place in 2003, according to data by the WTO. Countries such as Japan and Vietnam have “a huge amount of reliance on the Chinese supply chain,” said DBS’ Baig, explaining that those economies import materials and parts from China to make their own products to export.

“Not only will China slow and have impact on the global demand, these countries which rely on China for intermediate inputs will also be affected,” he said.

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Economy

Poland has EU's second highest emissions in relation to size of economy – Notes From Poland

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2 hours ago

April 18, 2024

Harry Miller

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Poland has EU’s second highest emissions in relation to size of economy Notes From Poland

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Economy

IMF's Georgieva warns "there's plenty to worry about'' in world economy — including inflation, debt – Yahoo Canada Finance

Published

3 hours ago

April 18, 2024

Harry Miller

WASHINGTON (AP) — The head of the International Monetary Fund said Thursday that the world economy has proven surprisingly resilient in the face of higher interest rates and the shock of war in Ukraine and Gaza, but “there is plenty to worry about,” including stubborn inflation and rising levels of government debt.

“ Inflation is down but not gone,” Kristalina Georgieva told reporters at the spring meeting of the IMF and its sister organization, the World Bank. In the United States, she said, “the flipside” of unexpectedly strong economic growth is that it ”taking longer than expected” to bring inflation down.

Georgieva also warned that government debts are growing around the world. Last year, they ticked up to 93% of global economic output — up from 84% in 2019 before the response to the COVID-19 pandemic pushed governments to spend more to provide healthcare and economic assistance. She urged countries to more efficiently collect taxes and spend public money. “In a world where the crises keep coming, countries must urgently build fiscal resilience to be prepared for the next shock,” she said.

On Tuesday, the IMF said it expects to the global economy to grow 3.2% this year, a modest upgrade from the forecast it made in January and unchanged from 2023. It also expects a third straight year of 3.2% growth in 2025.

The world economy has proven unexpectedly sturdy, but it remains weak by historical standards: Global growth averaged 3.8% from 2000 to 2019.

One reason for sluggish global growth, Georgieva said, is disappointing improvement in productivity. She said that countries had not found ways to most efficiently match workers and technology and that years of low interest rates — that only ended after inflation picked up in 2021 — had allowed “firms that were not competitive to stay afloat.”

She also cited in many countries an aging “labor force that doesn’t bring the dynamism” needed for faster economic growth.

The United States has been an exception to the weak productivity gains over the past year. Compared to Europe, Georgieva said, America makes it easier for businesses to bring innovations to the marketplace and has lower energy costs.

She said countries could help their economies by slashing bureaucratic red tape and getting more women into the job market.

Paul Wiseman, The Associated Press

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Economy

Nigeria’s Economy, Once Africa’s Biggest, Slips to Fourth Place – BNN Bloomberg

Published

4 hours ago

April 18, 2024

Harry Miller

(Bloomberg) — Nigeria’s economy, which ranked as Africa’s largest in 2022, is set to slip to fourth place this year and Egypt, which held the top position in 2023, is projected to fall to second behind South Africa after a series of currency devaluations, International Monetary Fund forecasts show.

The IMF’s World Economic Outlook estimates Nigeria’s gross domestic product at $253 billion based on current prices this year, lagging energy-rich Algeria at $267 billion, Egypt at $348 billion and South Africa at $373 billion.

Africa’s most industrialized nation will remain the continent’s largest economy until Egypt reclaims the mantle in 2027, while Nigeria is expected to remain in fourth place for years to come, the data released this week shows.

Nigeria and Egypt’s fortunes have dimmed as they deal with high inflation and a plunge in their currencies.

Bola Tinubu has announced significant policy reforms since he became Nigeria’s president at the end of May 2023, including allowing the currency to float more freely, scrapping costly energy and gasoline subsidies and taking steps to address dollar shortages. Despite a recent rebound, the naira is still 50% weaker against the greenback than what it was prior to him taking office after two currency devaluations.

Read More: Why Nigeria’s Currency Rebounded and What It Means: QuickTake

Egypt, one of the emerging world’s most-indebted countries and the IMF’s second-biggest borrower after Argentina, has also allowed its currency to float, triggering an almost 40% plunge in the pound’s value against the dollar last month to attract investment.

The IMF had been calling for a flexible currency regime for many months and the multilateral lender rewarded Egypt’s government by almost tripling the size of a loan program first approved in 2022 to $8 billion. This was a catalyst for a further influx of around $14 billion in financial support from the European Union and the World Bank.

Read More: Egypt Avoided an Economic Meltdown. What Next?: QuickTake

Unlike Nigeria’s naira and Egypt’s pound, the value of South Africa’s rand has long been set in the financial markets and it has lost about 4% of its value against the dollar this year. Its economy is expected to benefit from improvements to its energy supply and plans to tackle logistic bottlenecks.

Algeria, an OPEC+ member has been benefiting from high oil and gas prices caused first by Russia’s invasion of Ukraine and now tensions in the Middle East. It stepped in to ease some of Europe’s gas woes after Russia curtailed supplies amid its war in Ukraine.

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