Global Economy Assignment: Financial Crises During Pandemic
Assessment task: Global Macroeconomic Report (60%) This assignment has three parts.
• First, using data from international organisations, government, private institutions and academic sources, students will provide a synopsis of the current state of the global economy.
• Second, students will then focus on a single macroeconomic variable from their synopsis to explore in further detail. Students will track the chosen macroeconomic variable from at least the beginning of the 20th Century presenting their findings in graphical or tabular form.
• Third, highlighting at least three key events that have shaped the profile of data on that variable over the time series, students will provide explanations of the economic and political factors that shaped each event and, in turn, key economic outcomes that were shaped by them.
The present global economy assignment sheds light on the world economy which is currently is under a very difficult situation. With the onset of the global pandemic, the economic outlook of 2020 looks very bleak. There are very low chances of positive growth in the economy across the globe. World Economic Forum has projected that the global economy shall contract by about 3% (Brigham, E., & Gapenski, L, 1988). This is one of the worst financial crises the world has ever witnessed. Also this is based on the assumption that the pandemic would be controlled in second half of the year and the efforts would then be made to revive the economy.
Current State of the Economy
It is almost certain that almost all the economics would experience a series of low production, low consumption and low income levels. This is indirectly a vicious cycle and would lead to a massive recession or depression in the global economy all across. Below factors illustrated in the global economy assignment would help in analyzing it better? Below data from World Economic Forum journal for Global Economic Outlook April 2020:
According to the research on global economy assignment, the overall rate of unemployment at the advanced economies level is expected to increase substantially. World Economic Forum estimates that the unemployment rate will be 8.3 as against the earlier 5.1. below graph would help in understanding the situation in a detailed manner:
On the basis of above analysis provided in the global economy assignment we can see that the unemployment level is on an all-time high during the current 2020 economic situation. This is because of the global slowdown expectations and the fact that the countries will not be able to deal in the manner they used to (Fine, 2002). Also the overall hiring and job change will be difficult considering the current economic situation in the world and hence it is imperative that the unemployment would further add to the poor condition of the world economy and this would again bring about a sharp decline in the overall productivity of most of the firms (Woodhall, G., & Stuttard, A, 1999).
Growth in real per capita output
Real per capita output is one of the most important economic indicators of the output levels of any economy. The below chart represents the same:
On the basis of real per capita output considered in the context of global economy assignment one can understand how productive a country is. Measuring only output would be a half way discussion as it would not relate the same with the population which is also adding in a substantial manner to the overall production and consumption level. On the basis of above chart we can see that the real per capita output is expected to decline and infact below -6 (S. Agarwal, 2011). This is a matter of major concern for all the economies and hence this needs to be taken care of in a proper manner.
Consumer prices are an important economic indicator. This is because, with the use of economic prices, one can understand which all factor would have a greater contribution to the prices and the inflation level. High levels of inflation would again bring about lot of economic concern for the people at general because on one hand there is reduction in economic activities leading to low income and on the other hand there is increase in prices (Brigham, E., & Houston, J, 1998). Therefore, the net cash or purchasing power in the hands of the public reduces to a great extent. We can analyse the consumer prices from the chart provided below within the global economy assignment:
The above chart shows that while there is an expectation of consumer prices to fall in 2020, yet the same is not in same line with the fall in income levels and the overall economic output. Hence, it can be stated herein global economy assignment that the overall cost of basket is continuing to be same or little less than the previous one.
GDP per capita in current economy
There are various factors which contribute to this unprecedented global economic crisis. We shall discuss some of them in further details in our analysis on global economy assignment:
The above charts present us with two major statistical analyses:
- World Growth in GDP per capita and recession – This graph provided above in the global economy assignment has two lines, the blue one representing the per capita world GDP growth and the red one showing the share of countries with negative per capita growth levels. On the basis of this analysis we see while the global per capita GDP has been positive all across since 1990 except for 2008 when there was marginal reduction from 0, the estimates for 2020 is very low at around -4. This is certainly a matter of high concern and it becomes imperative for the world to understand that only constrained efforts from all segment of the economy can only bring it back to the normal levels (Chambers, R, 1967). The projection for 2021 depicted in the context of global economy assignment has been made at a steep increase in GDP per capita. This however is subject to change and depends on the response to the current pandemic and the time it takes to recover from the same. Unless the world comes together and ensures that the production and in fact all economic variables operate in a cluster manner this is not likely to happen. On similar lines we can also experience that share of countries with negative per capita growth is also on an ever increase indicating that almost all the economies in the world will post negative GDP (D. Gupta). The reasons for the same are known to all (Van Horne, J, 1980). The only savior is the manner in which we can protect and reduce the negative impact of such falling economy.
- Countries with negative per capita growth – We had already discussed in the segments of global economy assignment on the share of countries with negative per capita growth and have understood that more than 90% of the countries are expected to post results of negative GDP per capita. This is really a difficult situation. Now along with this it is also important to evaluate the purchase power parity for such segments of the economy. This is important because without PPP the economy is going to further suffer and the overall economic outlook would further be poor. PPP would ensure that there is no exploitation of people at the lower segments of the society and thereby help in the poorer country also get the value for money which they deserve. In the absence of the same, there would be further degree of unfair activities and hence the world economy would further suffer. This is going to cause a great deal of distress to the people.
- Government lending or borrowing ads pressure to the exchequer on the funds required to meet the fiscal deficit. In a way this is a fiscal drain on the resources of the country. This is because with the rise in public debt or the government borrowings the government will have to pay interest on the debt. Now again there are times that the resources required to pay the interest is itself not available and hence the government further takes loan to repay the interest and thereby ends up in a debt trap. This debt trap would obviously lead to negative results for the country and thereby the country would be forced with some difficult decisions. The government borrowings would drain a large amount of assets of the country. Hence taking into consideration these aspects would lead to financial losses. Below chart presented in the global economy assignment summarizes the government borrowings:
The above chart shows that during 2020 government borrowings as a % of GDP is expected to increase as much as 10% of the GDP. This is really going to add a large amount of financial stress on the economy as the cost of servicing of these debt has to be borne by the society at large. The public will face lot of issues in these and there would be an impact on the overall fund repayment and consequential debt trap for the organization.
There is a requirement of formulation of effective policies so as to ensure that global healthcare is properly monitored and that people are relieved from the risk of any such future pandemic. Investment in global health care is of prime importance and there is a need to ensure that the same is kept in close monitoring. Policy makers must initiate ways in which the production can boost, liquidity in the hands of general public is increased and there is overall focus on the development of the economy. Funds need to be placed in the hands of the people so that economy gains momentum on an overall basis. One cannot allow such situations to sustain for a longer period as the unrest which these economic downfalls will cause will also result into lot of distress. Policy makers will have to come together to understand the situation and they have to ensure that the condition of the economy if improved to a large extent (D. Mathews). This is therefore important that the financial situation and the economic processes are brought into the normal situation and that policy makers are taking initiative to ensure that the financial conditions are proper in an overall manner. Yet the overall economic output and the income level would continue to increase (Shim, J., & Siegel, J, 2000). This will have an impact on the purchasing power of the people and they would not be able to meet their requirements as earlier in a complete manner.
Key Events Shaping the GDP growth
The current economic situation explored in the segments of global economy assignment calls for continued efforts from all the policy makers and it is the time when everyone is required to make policies together to revive the world economy. Entire world needs to stand together and increase the level of trade across all segments. Below chart mentioned within the global economy assignment presents the degree of economic policy responses on the basis of current economic situation in the world economy:
- Credit/Financial Policies – Credit or financial policies at this time is one of the most important policies to watch. This is because; it is with the help of these policies one can achieve liquidity in the organization and effective liquidity would bring about the change which is required. In the absence of adequate credit and funds in the hands of public, people will not be able to make the required purchases and hence there will be reduced demand. Now if the demand will fall there would be fall in production and hence unemployment levels. Hence these would continue to go on (K. Gomes, 2009). The findings obtained in this section of global economy assignment signify that it is important to ensure that there is enough liquidity in the market and that the funds are utilized in the manner in which they are supposed to be. Effective stimulus is required to bring the economy back into pace.
- Tax Policies – This is again linked to the liquidity position of the public at large. However there is one more factor involved in the same is that the tax also corresponds to the overall fund collection of the government on the basis of which it fund lot of government activities. Currently it is important for the government to step in to ensure that the required level of funds and production level is achieved. Now for that government needs fund. There are two effective sources of funds for the government illustrated in the global economy assignment, one is the tax collections and the other is the government debts (Johnson, R, 1971). Government debts would further add to the financial burden of the people, and this has already been discussed earlier. So the result is tax collection. Increasing the tax rates would lead to decline in the income in the hands of the people and thereby this would again not be in the interest of the country. Hence government has to make a balance between the same and decide how to control the situation in such a manner that the financial crisis is resolved.
- Social, Regulatory and Other policies – Social policies are again an important component in the current times. The condition of the economy is not just an economic distress but also a major health hazard. Hence it becomes essential for the government to provide people with the required social and regulatory support which people require at this time. Large number of social obligations is required to be met and this would indeed help in development of financial condition of the economy. Regulatory policies will have to be prepared keeping in consideration the requirements of the public and thereby ensuring that business is supported (Paramasivan, C., & Subramanian, T, 2009). All policy practices must be developed keeping in mind that the social and economic objectives are to be met at all levels. In these times, it is important to develop the economy and to bring about a balance.
On the basis of above analysis done within this global economy assignment, we can see that the overall economy in a very poor state and there is a requirement of strong incentives to boost the production and the economic returns in the economy. The overall funding and liquidity situation obtained in the global economy assignment has to be improved in the economy and only then there can be some development and growth expected.
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- International Monetary Fund Reports
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