The Global Economy Report

Introduction

The world economy can be seen to be facing different threats ranging from indebtedness to leveraged loans that pose other additional financial challenges. While other countries like Japan are seen as being on the way to making surpluses, others are barely surviving. The paper is, therefore, premised on a report that seeks to discuss the current economic conditions in the major, African, Asian, European, North, and South American economies.

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It is clear that in March 2018, most world's economies are grappling with a record of high-level indebtedness. This is evident in both public and private domains. All major sectors have adopted very loose monetary policies, therefore, serving as a chief contributor to the status at the moment. As compared to the year 2008, the United Nations Conference on Trade and Development (UNCTAD) noted that the world debt stock now is three times global Gross Domestic Product (GDP) and about one-third higher (Simon, 2018).

In itself, the indebtedness is a great economic risk because the global economic growth appears to have peaked. In case of a down run, this alone can be disastrous. This comes at a time when many countries are resorting to monetary policies to increase asset values. They neglect productive investments for financial activities such as share by bucks and mergers and acquisition which tend to amplify financial risks.

Another potential risk to the global financial situation is increasing leveraged loans in developed economies like the U.S., Northern Ireland, and Great Britain. Firms highly prefer the loans with more debt levels due to their flexibility as compared to the bonds but they lower credit quality. The Global size of such loans stands at $1.3 trillion, which double the amount ten years ago. The scenario in the U.S. is even worse since it is more than the high-yielded bond market. Also being experienced in the financial world are slow economic growth rates as well as skyrocketing interest rates. Firms, as a result, have problems in clearing debts in time, bankruptcy and mark-to-market losses cases have greatly increased, and credit defaulters have equally increased. The effect can be fire sales hence a subsequent drop in prices that can culminate in liquidity crunches. Financial policymakers should, therefore, hope for a better-placed banking system with improved capitalization and less dependency on short term funding to help curb noticeable financial meltdowns and economic downturns due to leveraged lending.

In Africa, there is a concern due to the rise in sovereign bond issuance by many economies. Countries such as Kenya, Angola, Egypt, Morocco, and Cote d'Ivoire are projected to tap the international capital markets by June this year. Most African countries depend heavily on foreign funding options for their many investment projects (Haggard & Kaufman, 2018). External bond issuances have been made to mature after longer durations like 30 years hence encouraging many states to opt for them. They, however, raise the concerns about debt sustainability since the countries over-dependent on the bonds are exposed to much currency risk.

Taking a walk to Asia and beginning with China, there is an anticipated further rise in domestic debt due to the recent policy easing measures. There is a reported slow growth in the services sector with particular cases being noticed in retail, real estate, and wholesale trade subsectors. The financial authorities and bodies have put in place measures to support short term growth such as reducing the bank reserve requirement ratios raising bank lending quotas and restricting the local government bond issuances. The former has been done for five times in a single year. In Japan, the financial position is anticipated to improve gradually. The Japanese government aims at achieving a primary surplus by 2026 according to current projections by the Cabinet Office.

Across the South Asian countries, public debt levels are elevated, but they appear sustainable. The general government gross-to-GDP ratios in most countries of the region range between 40-50 percent, lower than in most developed countries (Kim, 2018). In India, the ratio is relatively high in particular at 69 percent in 2018, having fallen from a record high of 85 percent in 2003. In Western Asia though, there is an increasing debt financing for oil-exporting states because of the falling global oil prices. Countries of this region such as Bahrain and Saudi Arabia that are members of the Gulf Cooperation Council (GCC) have been reported to have implemented measures such as Value Added Tax (VAT) and more debt financing options as corrective measures to the financial crisis. The GCC member states have, however, remarkably maintained growth in education and infrastructure (Emery, 2018).

There are also reports in Latin America and the Caribbean with the main focus being on Brazil where the government proposes pension reforms. This has been necessitated by the growing needs for fiscal adjustments although there has been a drop in the budget deficits. Brazil's new government is finalizing on a pension reform proposal that will be sent to Congress for approval. In Jamaica, the country has finally managed to bring back their public debt in the sustainable path after registering primary surpluses of more than 7 percent of the GDP for more than six years (Dierick, 2018). As a result, unemployment has reduced, and macroeconomic stability improved.

On the part of the United States, almost one-third of the fiscal spending is reported not have been covered by receipts. There has been a rise in the federal budget deficit to 29 percent of the outlays within the starting quarter of the current financial year. The economy has, however, reported a boom with record low unemployment levels despite the recent partial government shutdown (Dierick, 2018). It is also anticipated that more will be spent on entitlement programs and that the increasing interest rates to normal levels will increase spending just adequate to clear the public debt in place.

Lastly, looking at the European countries, the fiscal policy space has remained limited. Most countries in this region have heavily relied on monetary measures to control the financial crisis. There have been reports of increased debt-to-GDP ratios, with countries such as Belgium, Portugal, Italy, and Greece at 100 percent. Cyprus, Spain, and France have however recorded lower percentages here. With this in mind, interest rates and debt servicing costs are expected to increase among many members of the European Union (Lucey et al. 2018). In Southern Europe, countries such as Montenegro are experiencing increased public debt, at 70 percent, due to infrastructure developments financed by China in the region.

Conclusion

In conclusion, as seen in most parts of the world, most countries are faced with high public debt levels. This alone is a perilous financial situation. It is prudent if the situation sounded an alarm to financial systems to adopt early and effective corrective measures before all the major economies sink into debts and lead to a possible Great Depression of our time.

References

Haggard, S., & Kaufman, R. R. (2018). The political economy of democratic transitions. Princeton University Press.

Simon, D. (2018). Contextualizing South African Local Economic Development within current development debates: The International Setting. In Local Economic Development in the Changing World (pp. 17-35). Routledge.

Kim, Y. (2018). The Southeast Asian Economic Miracle. Routledge.

Emery, R. F. (2018). The bond markets of developing East Asia. Routledge.

Dierick, F. (2018). EU policies to support financial integration. Elements of the Euro Area (pp. 87-102). Routledge.

Lucey, B. M., Vigne, S. A., Ballester, L., Barbopoulos, L., Brzeszczynski, J., Carchano, O., & Goodell, J. W. (2018). Future directions in international financial integration Research-A crowdsourced perspective. International Review of Financial Analysis, 55, 35-49.