Economic globalisation is a worldwide phenomenon wherein countries’ economic situations can depend significantly on other countries. Many allied countries would supply resources to each other that the other countries do not have. These resources can cover imported products, technology, and even human labor. Many people have observed that this phenomenon may lead to a “one-world government,” which consists of a centralized government for all nations.
One popular activity under globalisation is International trade , in which products and services are exchanged between or among nations. Many countries that have abundant natural resources rely on this trading system to market their unique local products and, in turn, improve their economic state.International trade has been practiced for centuries, as evidenced by the Silk Road that connects Asia and Europe for trading purposes. One modern example of this type of trade is the toy industry, where in many european- sold toys have the phrase “Made in China” embossed on their surface.
Economic Globalisation may involve the financial and economic aspects of a nation primarily, but its interdependent nature can inevitably affect a country’s lawmaking system and cultural identity. Trading policies and tax treaties are created between countries to regulate trade and protect either country from threats of terrorism. Multinational companies are changing some cultural aspects of many countries; fast food restaurants, for example, have changed the eating habits of Asian countries that consider rice as a staple food. Fashion trends from European countries are also carried over to the opposite side of the globe.
Depending on a person’s perspective, economic globalisation has both advantages and disadvantages. Advocates assert that the phenomenon increases a country’s productivity with increased job opportunities and possible higher salaries. This can lead to economic growth and a higher standard of living. The reliance of countries on each other has also led to better chances of international peace. It has also paved the way for cultural awareness and understanding, largely through the help of technology.
On the other side, some people believe that globalisation has more disadvantages than benefits. One negative result is that natural resources are depleted at a faster rate, since the demand for raw materials has increased among many countries. Another drawback is the violation of human rights, as many countries can exploit human labor outsourced from developing countries. Others say that it’s a method for more powerful countries to
colonize less developed ones by taking control of the latter’s economic situation. Whether economic globalisation has positive or adverse effects, no one can doubt the phenomenon’s influence and impact on today’s global development.
Prospects for the world economy in 2015–2016
Global growth prospects
The global economy continued to expand during 2014 at a moderate and uneven pace, as
the prolonged recovery process from the global financial crisis was still saddled with unfinished
post-crisis adjustments. Global recovery was also hampered by some new challenges,
including a number of unexpected shocks, such as the heightened geopolitical conflicts in
various areas of the world. Growth of world gross product (WGP) is estimated to be 2.6 per
cent in 2014, marginally better than the growth of 2.5 per cent registered in 2013, but lower
than the 2.9 per cent projected in World economic situation and prospects as of mid-2014.1
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In the outlook period, premised on a set of assumptions and subject to a number
of uncertainties and downside risks (see the section on uncertainties and risks), the global
economy is expected to strengthen in the following two years, with WGP projected to grow
by 3.1 and 3.3 per cent in 2015 and 2016, respectively .
Six years after the global financial crisis, gross domestic product (GDP) growth for
a majority of the world economies has shifted to a noticeably lower path compared to
pre-crisis levels. Excluding the three years from 2008–2010, which featured, respectively,
the eruption of the financial crisis, the Great Recession and the policy-driven rebound,
four fifths of the world economies have seen lower average growth in 2011–2014 than in
2004–2007 . At issue is whether such a shift to a lower path of growth in most
countries will become entrenched for a long period. According to some pessimistic views,
major developed economies are highly likely to be entrapped in secular stagnation , while policymakers in China have indeed taken growth of 7.0–7.5
per cent as the new normal for the Chinese economy, compared with the average growth
of 10 per cent that China achieved in the previous three decades. Many other large emerging
economies, particularly those outside of Asia, have also seen a much slower growth
trajectory in recent years as domestic weaknesses interact with challenging international
conditions.
A salient feature for major developed countries during 2014 has been the erratic
movements in their quarterly GDP growth rates. For example, the economy of the United
States of America oscillated from a decline of 2.1 per cent in the first quarter of 2014 to
an increase of 4.6 per cent in the second quarter, while at the same time the economy of
Japan swung from growth of 6.7 per cent to a contraction by 7.3 per cent. For the year as a
whole, all major developed economies in North America, Europe and developed Asia have
indeed aligned on an upward growth trajectory for the first time since 2011. Although the
discrepancy in the growth rates of these economies has narrowed from the previous year
, the growth picture remains diverse: while the United States has managed to maintain an annual growth rate above 2 per cent in 2014, the economic situation in Europe is precarious, particularly in the euro area, where growth is exceptionally weak,
with some countries close to or already in recession. Meanwhile, in Japan, momentum generated by the fiscal stimulus package and monetary easing introduced in 2013 has receded.
baseline outlook, further improvement is expected for developed countries, with growth
projected to be 2.1 and 2.3 per cent for 2015 and 2016, respectively, compared with the 1.6
per cent estimated for 2014. However, downside risks remain significant, especially in the
euro area and Japan, which have seen renewed weakness in 2014.
Growth rates in developing countries and economies in transition have become more
divergent during 2014 , as a sharp deceleration occurred in a number of large
emerging economies, particularly in Latin America and the Commonwealth of Independent
States (CIS). A number of these economies have encountered various country-specific
challenges, including structural imbalances, infrastructural bottlenecks, increased financial
risks and ineffective macroeconomic management, as well as geopolitical and political tensions.
In contrast, East Asia, including China, managed to register relatively robust growth,
while India led South Asia to a moderate strengthening. In the baseline outlook, developing
countries as a group are expected to grow at 4.8 and 5.1 per cent in 2015 and 2016, respectively,
up from the 4.3 per cent estimated for 2014. Growth in the least developed countries
(LDCs) is expected to continue exceeding the global average, at 5.7 per cent in 2015 and
5.9 per cent in 2016 . The economies in transition as a group are expected to grow
at 1.1 per cent and 2.1 per cent in 2015 and 2016, respectively, up from the 0.8 per cent
estimated for 2014. As in the case of developed economies, the risks to this baseline outlook
are mainly on the downside. Many developing countries and economies in transition
appear vulnerable to a tightening of global financial conditions and to the risk of a sharper-than-expected
slowdown in major emerging economies, as well as a further aggravation
of geopolitical tensions and an escalation of the Ebola epidemic.
Among the developed economies, the economy of the United States, after some erratic
fluctuation in 2014, is expected to improve in 2015 and 2016, with GDP projected to
expand by 2.8 and 3.1 per cent respectively, compared with an estimate of 2.3 per cent
for 2014. While an increase in business investment will be the major driver, household
consumption is also expected to strengthen, along with continued improvement in employment.
The fiscal drag on growth is expected to remain, but with much milder intensity
than in previous years. The policy interest rates are set to rise gradually after mid-2015,
but the monetary policy stance will continue to be accommodative. The contribution from
the external sector will be limited, as export growth is expected to be curbed by the strong
appreciation of the dollar. The risks for the economy are mainly associated with the possibility
of sizeable volatility in financial markets in response to the normalization of monetary
policy, leading to adverse effects on the real economy.
Western Europe continues to struggle. In the EU-15,2 GDP growth is estimated to be
only 1.2 per cent in 2014, with a slight pickup to 1.5 per cent and 1.9 per cent in 2015 and
2016, respectively. The region is held back by the travails of the euro area, where the level of GDP has yet to regain its pre-recession peak. Unemployment remains extremely high in
many countries in the region and headline inflation is at alarmingly low levels. In the large
economies, Italy is expected to contract for the third consecutive year and France has stagnated,
while Germany started the year strongly, but has since slowed significantly. There
is a ray of hope in that some of the crisis countries have resumed growth. Spain resumed
positive growth in mid-2013 and has been strengthening since; Ireland and Portugal have also returned to positive growth, but all three recoveries remain extremely fragile. The only
example of more robust growth is outside the euro area in the United Kingdom of Great
Britain and Northern Ireland.
The recovery in the new European Union (EU) member States gained further ground
in 2014, thanks to recovering domestic demand, the gradual abandonment of fiscal austerity
and a turnaround in the inventory cycle. While the region is confronted with a difficult external environment as prospects for the core euro area countries are downgraded, domestic
demand is becoming an increasingly important driver of growth. Although household
foreign-exchange-denominated debt still remains a major macroeconomic problem in some
of the new EU members, private consumption is expected to strengthen in the outlook
period and investment is benefiting from the expansion in public sector projects. Inflation
in the region hit record lows in 2014, thanks to lower food and energy prices; it is estimated
to have been negative in a number of countries and is expected to remain very low in
2015. Labour markets continued to improve, although progress was very uneven across the
countries. In those with flexible currencies, interest rates were reduced to record lows and in
2015, monetary policy should remain accommodative. However, as deleveraging by foreign
banks continues (although at a diminishing rate), the recovery in credit markets lags. The
aggregate GDP of the new EU member States is expected to grow by 2.9 per cent in 2015
and 3.3 per cent in 2016, compared with an estimate of 2.6 per cent in 2014.
Japan is estimated to grow by only 0.4 per cent in 2014, technically falling into a
recession in the second and third quarters. The drop in private consumption caused by the
higher consumption tax is the main reason for the slowdown. Quantitative easing introduced
in 2013 has predictably raised inflation expectations and the central bank further
strengthened this policy in late-2014. Exports are expected to eventually benefit from the
depreciation of the Japanese yen triggered by the monetary easing, while the planned cut
in corporate taxes will support fixed investment. The growth rate is predicted to be 1.2 per
cent in 2015 and 1.1 per cent in 2016.
Regarding other developed countries, GDP in Canada is estimated to register growth
of 2.3 per cent in 2014 and is projected to grow by 2.6 per cent and 2.8 per cent in 2015 and
2016, respectively. Exports will likely expand at a robust pace and support growth. However,
household indebtedness remains a concern and improvement in the labour market has
been slow. GDP in Australia is estimated to grow by 3.0 per cent in 2014, before receding to
2.4 per cent and 2.3 per cent in 2015 and 2016, respectively. Exports and fixed investment
in large natural resource projects will provide support for continued growth, while the slow
improvement in the labour market will be a limiting factor. New Zealand became the first
developed country to tighten its monetary policy stance after the Great Recession. GDP is
estimated to grow by 3.0 per cent in 2014 and 3.3 per cent in 2015, with the solid expansion
of investment in fixed structures as an important contributor.
Among the developing countries, Africa’s overall growth momentum is set to continue,
with GDP growth expected to accelerate from 3.5 per cent in 2014 to 4.6 per cent in
2015 and 4.9 per cent in 2016. Growth in private consumption and investment are expected
to remain the key drivers of GDP growth across all five subregions and all economic
groupings. Net exports will continue to moderately pull down growth. Inflation in Africa
will remain flat, at an average of 6.9 in 2015, in the light of moderating global prices for
commodities, food, oil and industrial imports as well as prudent monetary policies. Fiscal
balances will remain negative, owing to infrastructure spending, public wage bills and
social sector projects. A number of internal and external risks remain, such as a continued
slow recovery in the developed countries, a slowdown in China, tighter global financial
conditions, the Ebola outbreak, political instability, terrorism and weather-related shocks.
East Asia remains the world’s fastest-growing region, with GDP growth estimated at
6.1 per cent in 2014. In the outlook period, the region is projected to see stable growth of
6.1 per cent in 2015 and 6.0 per cent in 2016. China’s transition to more moderate growth
is expected to be partly offset by higher growth in other economies, where investment and exports will likely strengthen as activity in developed countries improves. Household
consumption is expected to remain strong in most economies, supported by mild inflation,
robust labour markets and generally low real interest rates, even as monetary conditions will
likely become less accommodative, in line with the normalization of monetary policy in
the United States. Fiscal policy is expected to remain mildly supportive of growth and most
countries have sufficient space to provide additional stimulus, if necessary. The key downside
risks for East Asia are related to the upcoming tightening of global liquidity conditions,
which could result in weaker growth of domestic consumption and investment, and to a
sharper-than-expected slowdown of the Chinese economy.
Economic growth in South Asia is set to gradually pick up from an estimated 4.9
per cent in 2014 to 5.4 per cent in 2015 and 5.7 per cent in 2016. While the recovery will
be led by India, which accounts for about 70 per cent of regional output, other economies
such as Bangladesh and the Islamic Republic of Iran are also projected to see stronger
growth in the forecast period. Along with robust external demand, growth is expected to
be underpinned by a moderate strengthening of domestic consumption and investment as
countries benefit from improved macroeconomic conditions. With international oil prices
declining, inflation has further eased across the region. If this trend continues, some central
banks may have room to ease monetary policy. At the same time, several countries, notably
India, are likely to make progress in implementing economic policy reforms, thus providing
support to business and consumer confidence. There are, however, significant downside
risks for the region due to the continuing fragility of the global economy and considerable
country-specific weaknesses, including political instability and the agricultural dependency
on the monsoon.
Lower oil prices and armed conflicts in Iraq, Gaza and the Syrian Arab Republic
hampered economic growth in Western Asia throughout 2014. The external environment
was also not conducive to growth for non-oil exporting countries, given the relatively subdued
economic growth in many developed economies. On the domestic front, the Cooperation
Council for the Arab States of the Gulf (GCC) partially offset weaker external
demand for oil by increasing fiscal spending, whereas other countries, such as Turkey,
had to implement restrictive policies, either to limit their fiscal deficit or to avoid further
depreciation of the national currency and inflation pressures. As a result, GDP growth has
slowed to 2.9 per cent in 2014 from 4.0 per cent in 2013. During the forecast period, the
aggregate economic situation is expected to pick up, although with only relatively modest
GDP growth compared to previous years. Domestic demand will remain strong in GCC
members, stimulated by ongoing public investment in infrastructure. Turkey will benefit
from stronger external demand, provided that the depreciation of the national currency will
continue to help the export sector, with GDP projected to grow by 3.7 per cent in 2015 and
4.3 per cent in 2016. The downside risks notably include any possible further fallout from
the conflicts in Iraq and the Syrian Arab Republic. Moreover, should the Brent oil price
come down to a level below $70 per barrel, it would hurt business confidence significantly
in GCC countries.
Economic growth in Latin America and the Caribbean is projected to moderately
improve from a meagre 1.3 per cent in 2014 to 2.4 per cent in 2015 and 3.1 per cent in 2016,
albeit to varying degrees across countries and with significant risks to the downside. Investment
demand is estimated to recover from the current sharp slowdown, as large public
investment projects are expected to be implemented in countries such as Brazil, Chile and
Mexico. Accommodative monetary policy is also expected to support economic activity in some countries. On the external front, a sustained recovery in the United States will continue
to benefit the economies of Mexico and Central America through the trade, tourism
and remittances channels. The downside risks are related to a larger-than-expected growth
decline in China, further reductions in commodity prices and the potential financial spillovers
from the normalization of the monetary policy stance in the United States.
Among the economies in transition, growth in the CIS slowed down sharply in 2014.
The geopolitical tensions in the region resulted in a difficult external environment with
high levels of uncertainty. Economic activity in the Russian Federation came to a standstill,
which also lowered growth prospects for other economies in the region. In Ukraine,
a severe output contraction followed years of sluggish expansion. Smaller CIS economies
were affected by a contraction in the inflow of remittances. The prospects for 2015 are
weak: near-zero growth is expected in the Russian Federation as the high cost of capital
will deter private investment, and the possibility of deeper recession exists in Ukraine.
However, some of the Central Asian energy exporters will continue to see strong growth.
Inflation in the CIS accelerated in 2014, as currency depreciations created price pressures in
many countries, including in the Russian Federation. Despite the slowdown in economic
activity, the unemployment rate in the Russian Federation reached historical lows during
the year. By contrast, labour market conditions worsened in Ukraine and in lower-income
Central Asian countries. The aggregate GDP growth of the CIS and Georgia is expected to
strengthen only modestly to 1.1 per cent in 2015 and 2.1 per cent in 2016, compared with
the estimate of 0.8 per cent for 2014.
After returning to growth in 2013, overall economic activity in South-Eastern Europe
slowed down in 2014, as significant floods in May caused severe damage in Bosnia and
Herzegovina and Serbia. As a result, the economy of Serbia contracted in 2014. Economic
performance in the rest of the region modestly improved. External demand remained the
main driver of growth in early 2014. After contracting for two years, domestic demand
also modestly recovered, with the notable exception of Serbia. Infrastructure, tourism and
energy projects have supported economic expansion in the region. Growth is expected to
pick up in 2015, boosted by reconstruction work in flood-affected areas and planned infrastructure
projects, although high unemployment, ongoing fiscal adjustments and elevated
indebtedness will constrain the speed of economic expansion. The aggregate GDP of
South-Eastern Europe is expected to grow by 2.7 per cent and 3.0 per cent in 2015 and
2016, respectively, compared with the estimate of 0.7 per cent in 2014.
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GLOBALISATION 