[Global Economic Times] Recently, risk factors in the global economy have shifted from prices to politics and public debt, and business and consumer sentiment has been evaluated as pessimistic due to the U.S. presidential election and geopolitical turmoil.
According to the Global Economic Recovery Tracking Index (Tiger Index) released by the Financial Times (FT) together with the Brookings Institution on the 20th (local time), economic activity in major countries is quite solid, but the confidence index has plummeted or remained in the negative range.
“There is a feeling of gloom and uncertainty,” the Brookings Institution said. “Confidence levels are very low even in countries with strong economies.”
Economic activity indicators have improved in the United States and China, but trust has fallen significantly and is below the long-term average. Trust also fell in Japan and Germany.
The economies of the United States and India remain in high gear, and Germany's real economic activity indicators are the weakest since 2020, but the situation is the same.
Bloomberg News diagnosed that the global economy, including the U.S., is moving toward a soft landing, contrary to expectations, thanks to price stability, but politics and debt have now emerged as risk factors.
According to the Organization for Economic Co-operation and Development (OECD), the unemployment rate in advanced countries remains at the same level as in 2022.
Bloomberg Economics predicts this year's global economic growth rate to be 3%, which is lower than last year (3.3%) but significantly different from the gloomy outlook at the beginning of the year.
U.S. consumption and employment indicators are strong, and economic growth is expected to continue in Europe despite weakening demand.
China's economic stimulus package may fall short of stock investors' expectations, but it will bring this year's growth rate closer to the target (about 5%).
However, while the impact on the global economy is expected to change dramatically depending on the results of the US presidential election, government debt is rapidly increasing and tensions are rising in the Middle East, Ukraine, and the Taiwan Strait.
Former US President Donald Trump, the Republican presidential candidate, is threatening the US and global economies with his tariff pledges.
According to a joint study by the Brookings Institution and the Peterson Institute for International Economics (PIIE), this policy is likely to cause confusion for businesses.
According to Bloomberg Economics, if China retaliates against Trump's tariffs, the US gross domestic product (GDP) could decline by 0.8% by 2028, when the next US presidential election is held.
Christine Lagarde, President of the European Central Bank (ECB), said at a press conference after announcing the interest rate cut on the 17th, "I think there is a possibility of a soft landing for the economy, but a new trade war is a risk," and added, "Any restrictions or uncertainties regarding trade will prevent an open country like Europe." “There is an impact on the economy,” he said.
There are concerns that if a full-scale war breaks out in the Middle East while the war in Ukraine continues, the repercussions will be significant.
Bloomberg Economics estimated that if international oil prices exceed $100 per barrel and risk aversion intensifies in the financial market, the global economic growth rate will decrease by 0.5 percentage points over the next year.
The risks of global public debt are also becoming more prominent.
The International Monetary Fund (IMF) predicted that public debt will exceed $100 trillion (KRW 136,820 trillion) for the first time in history by the end of this year. This amounts to 93% of world GDP.
This will reduce the options for each government to respond the next time an economic downturn occurs.
The U.S. Treasury announced on the 18th that the federal government bond interest burden has reached its highest level in 28 years. This is the result of a combination of increased government bond issuance due to fiscal deficit and rising interest rates.
Public debt and geopolitical issues are top of mind for attendees of this week's IMF/World Bank (WB) annual general meetings.
Karen Dinan, a former Federal Reserve economist and professor at the Harvard Kennedy School, said, "I am very worried that when there is a shock to the economy, we will not be able to make optimal decisions due to lack of fiscal space and concerns about inflation." “The moment will come,” he said.
“How can you have a soft landing when the world is in such chaos?” said Peter Pratt, former ECB chief economist. “No economy will be able to have a soft landing in the current environment, there will be a shock.”
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