Date: 2016-08-12

Impact of Global Growth Slowdown

Zheng Nie

People’s attention shifted to the U.S. stock market again when stock prices dropped by 10 percent and hit a record low since October 2011. Although the recent ease-money government policies played a role in the price drop, the main reason for the decline was the global growth slowdown.

Since the recession, the global economy has mainly relied on China and other emerging markets as developed economies have struggled. However, China’s economy is slowing down nowadays—its GDP growth was 10.4% in 2010, followed by 9.3%, 7.7%, and 7.6% in the next three years. Perhaps surprisingly, China's manufacturing economy is greatly shrinking as more foreign manufacturers are moving out of the mainland. This hurt the countries that supply oil, iron ore, and other raw materials to the world’s second-biggest economy. Some of these countries, such as Indonesia and South Africa, are already struggling with the loss of investment to other countries with rising interest rates.

The volume of world trade has decreased by a large degree since the recession and the global growth slowdown. For example, India’s international trade decelerated sharply from 12.9% in 2010 to 6.1%, 2.7%, and 2.9% in the next three years. Currency depreciation across the world has lowered people's abilities to afford the commodities that are imported from other countries.  The prices in the exporting community will continue to inflate as long as international trade activities keep shrinking.

The global growth slowdown also contributes to a global imbalance. People allocate their investment to more steady economies or currencies and try to avoid losses. This will widen the economic gaps between developing countries and developed countries as the outflows of capitals to the more stable developed countries will affect employment, living standards, and other social factors in developing economies.

There is a need for structural reforms across all major economies in order to increase global growth. How to improve competitiveness in economies during the global economy slowdown is a major issue for all countries.

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