What are the major variables shaping the global economy in 2020?
The global economy in 2020 is witnessing an unprecedented turmoil. The ongoing COVID-19 crisis has a more pessimistic impact on the economy, affecting the growth of the GDP globally. According to the World Economic Outlook, global growth is projected to rise modestly from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. However, the pandemic has impacted all the growth projections in the first half of 2020 than anticipated. The projected recovery for global growth is expected to remain indeterminate and continue to rely on underperforming emerging economies since growth in advanced economies stabilizes at close to current levels.
There are many variables impacting economic performance throughout the year. These include Federal Interest Rate, Housing Market, US-China Trade war, Geopolitical Institutions, Society, Stakeholders, Oil prices, Consumer spending, and others.
Federal Interest Rates
Many economic experts predict that 2020 will be a Goldilocks economy. But the early reports indicate a worse scenario for the global economy. The Federal Reserve has reduced the benchmark fed funds rate to its current range of 0 percent to 0.25 percent, much lower than the Fed’s target of 2 percent. It means inflation is lower than its 2 percent target. The theory behind the cutting rates and borrowing costs decrease is to prompt businesses to take out loans to hire more people and expand production. Along with this interest rate decision, analysts projected that the economy will shrink 6.5 percent in 2020 and will show a 5 percent gain in 2021, followed by 3.5 percent in 2022.
Owing to the COVID-19 pandemic and the Russia-Saudi Arabia price war oil prices witnessed a sharp decline. There is huge uncertainty between the supply and demand of crude oil. The pandemic has significantly created chaos in the oil industry, threatening the survival of certain oil producers. As crude oil is a crucial factor of the global economy growth, its prices gradually trended downward by 30 percent after the first death of coronavirus announced and the disease started spreading from one country to another so that governments shut down air travel and commerce.
US-China Trade War
The U.S. and China are two countries in the world that race to become the global superpower. The relationship between both countries is freefall and always sees in the face of a trade war. However, this trade war not only causes these two countries’ economy but also to the global economy. In 2018, President Donald Trump began imposing tariffs and other trade barriers on China, forcing it to make changes to what the U.S. says are “unfair trade practices”. However, Trump’s reduction of the bilateral trade deficit with China was quite costly, with a significant contraction in economic activity and an unintended growth in China’s overall trade surplus. According to a Bloomberg article, China’s trade surplus with the U.S. has grown almost 25 percent since the start of the Trump presidency, surpassing US$300 billion on an annualized basis.