A Stress Test for the Global Economy

The fiscal policies of the current US Administration, with its America-first drivers, have deviated from previous Administration’s policies, and provide a stress test to the global economy, according to a recent Bloomberg News article.

Dangers Beneath the Surface
On the surface the news looks good. The International Monetary Fund (IMF) World Economic Outlook is forecasting global growth of about 4% for the next two years. The Bloomberg article, however, suggests that the positive outlook may be misleading. Risks are increasing beneath the surface, it says, and some of these dangers are being created right here in the USA.
These risks include:
Continued Loose Monetary Policy
• Continued Loose Monetary Policy
Unprecedented US Debt
• Unprecedented US Debt
Excessive Fiscal Stimulus via the Recent Tax Cuts
• Excessive Fiscal Stimulus via the Recent Tax Cuts
Trade War Saber Rattling
• Trade War Saber Rattling

Discussion
Monetary policy remains very loose in the US, Europe and in other parts of the world. Global economies, however, have already picked up. Balancing interest-rate rises will stress growth going forward. In the US particularly, recent congressional passing of a major tax cut may excessively stimulate the American economy. Also, as an unpleasant backdrop, the US nation debt continues to shoot up.

Presidents Trump’s aggressive posture regarding trade deals is a critical mix in the overall equation. The threat of trade wars is real, and if realized, could quickly impact the economies of the globe. Only time will tell how these concerns will play out.

Oil Exporting Countries Must Diversify

Due to changes in the global economy, oil exporters, especially those in the Middle East, must diversify into other industries in order to survive, states CNBC in a recent article. This is nothing new, but is becoming more urgent.

Countries such as the United Arab Emirates have began changes long time ago. Dubai, for example, has become not only a financial center, but a tourist destination as well. Now, Egypt is looking to make changes. Recently, International Monetary Fund’s leader, Christine Lagarde, praised Egypt for making significant progress with economic reforms. Ms. Lagarde admitted that it will take time before these structural changes take effect and make things better, but they still are needed.

Egyptian economy is now growing at 5 percent a year, a vast improvement from a deep crisis after the Arab Spring. Due to political turmoil and terrorist attacks, tourism has dropped, affecting many people. Back in 2016, IFM provided a $12 billion bailout to the country. There are other encouraging signs. Inflation peaked at 35 percent last July, but is expected to drop to 12 percent this year.

Still, there are many unresolved problems. The country’s population of 90 million continues to rise, making it difficult for the economy to give jobs to all young people. And that can lead to more unrest.

There are encouraging signs from other countries in the region, too. For example, Morocco has been doing fine lately when it comes to economic growth and stability.