So, the warning bells are ringing! The Bank for International Settlements (BIS) - known as the central bankers' bank - assessed that the situation in the global economy was similar to the pre-2008 crash era when investors, seeking high returns, borrowed heavily to invest in risky assets, despite moves by central banks to tighten access to credit. BIS opines that investors are ignoring warning signs that financial markets could be overheating and consumer debts are rising to unsustainable levels-- the global body for central banks has warned in its quarterly financial health check. The BIS is of the view that attempts by the US Federal Reserve and the Bank of England to choke off risky behaviour by raising interest rates had failed so far and unstable financial bubbles were continuing to grow
Recent weeks' economic data from India, China and Japan, as well as favourable indicators from Europe and another month of strong employment growth in the U.S reinforced the message that global economy continues to gather momentum. With all four major economic regions now contributing to the improved prospects for global growth, these developments could also lower some of the currency and trade tensions. The prospects for better future growth, thereby increasing the possibility of improved economic fundamentals, cannot be ruled out in spite of the fact that the globe has been indicating a number of risks that require continuous attention.
The UN opines in a report that the global economy is growing by about 3 per cent-"a welcome sign of a healthier economy, but the growth may come at an environmental cost." As for the United States, the report said following an estimated growth of 2.2 per cent in 2017, America's economy is forecast to expand at a steady pace of 2.1 per cent in both 2018 and 2019. "This marks a significant improvement compared to the 1.5 per cent growth recorded in 2016," it said adding, "The acceleration largely stems from shifting dynamics in business investment and, to a lesser extent, net trade."
In its latest assessment of the global economy, the OECD found job creation in the UK losing momentum, while consumer spending would remain subdued as higher inflation, pushed up by the depreciation of sterling after the Brexit vote, continued to hold back household purchasing power. While a weaker pound should help to increase exports, import growth is projected to fall as a consequence of weaker private consumption. "The major risk for the economy is the uncertainty surrounding the exit process from the European Union, which could hold back private spending more than projected," its report found, adding that the prospect of maintaining the relationship "with the EU would lead to stronger-than-expected growth."
It is clear that crucial role in the global economy is played by the developing block, especially the emerging economies. The UN Report has gone to the details of current performance. "In 2017, east and south Asia accounted for nearly half of global growth, as both regions continue to expand at a rapid pace. Though the Chinese economy alone contributed about one-third of global growth during the year, the contribution has also been very prominent so far as economies like India, Bangladesh, Vietnam, South Korea and the likes are concerned. The IMF is of the view that reforms by Beijing in recent years had not gone far enough. "The system's increasing complexity has sown financial stability risks," the IMF's assessment said. "Credit growth has outpaced GDP growth, leading to a large credit overhang. The credit-to-GDP ratio is now about 25 per cent above the long-term trend, very high by international standards and consistent with a high probability of financial distress", the report added.
The report said improvements in Argentina, Brazil, Nigeria and Russia as they emerge from recession "also explain roughly a third of the rise in the rate of global growth between 2016 and 2017." However, many commodity exporting countries are facing economic challenges, according to the report. Here we have to look at what the report assessed. From 2017 to 2019, the report said, "further setbacks or negligible growth in per capita GDP is anticipated in central, southern and west Africa, western Asia and Latin America and the Caribbean." These regions are home to 275 million people living "in extreme poverty."
The $1.90 per person per day threshold for extreme poverty is a standard adopted by the World Bank and other international organisations to reflect the minimum consumption and income level needed to meet a person's basic needs. That means that people who fall below that poverty line-that's 1/8 of the world's population, or 767 million people -lack the ability to fulfill basic needs, whether it means eating only one bowl of rice a day or forgoing health care when it's needed most.
The most basic financial services reach only around 10 per cent of rural communities. It is well known a fact by now that developing countries are experiencing a rapid growth in urbanisation. As a result, countries are faced with shortage of jobs. Unemployment rates rise causing people to apply for government-funded programmes and benefits. Businesses and governments cannot produce enough jobs to meet the demand of a fast-growing population in developing countries. The major problems associated with urbanisation are: high population density, inadequate infrastructure, lack of affordable housing, flooding, pollution, slum creation, crime, congestion and poverty.
Regarding the state of infrastructure, the little said the better. Rapid population growth has led to an acute shortage of dwelling units which resulted in overcrowding, traffic congestion, pollution, housing shortages (slum and squatter housing), high rents, poor urban living conditions, low infrastructure services, poverty, unemployment and poor sanitation. A number of developing countries are still faced with bad road network, lack of power supply, inadequate water supply and some basic amenities.
Dr B K Mukhopadhyay is Professor of Management, ICFAI University, Agartala. India.
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