A diesel engine factory in the China-Belarus industrial park in Minsk in October 2019. The park has thrived under the Belt and Road Initiative (XINHUA)
As one of the most influential international forums, the World Economic Forum (WEF) has often been a bellwether for world economic development and global cooperation. As the curtain goes up on the WEF Annual Meeting 2020 in Davos, Switzerland, under the theme of Stakeholders for a Cohesive and Sustainable World, the meeting will again bring together international elites to discuss approaches to common prosperity on January 21-24.
The world economy now faces daunting structural challenges with mounting unilateralism and protectionism and rising risks of geopolitical conflicts. It is imperative for all countries to work together to reinvigorate multilateralism and global governance.
A slight warming up
In 2019, the world economy struggled through twists and turns, continuing its slump from the previous year. Its growth slowed to 3 percent from 3.6 percent in 2018, the lowest since the 2008 financial crisis. But the fourth quarter saw some positive signs, with orders and consumer demand picking up and the global manufacturing purchasing managers' index rising above 50 for the first time after six consecutive months of decline. Countries have gained more market confidence, and a growth rate of 3.1-3.4 percent is projected for 2020, higher than last year.
Since the U.S. unilaterally launched a trade war against China, consumer and investor confidence has been undermined, while economic growth in the two countries, as well as the rest of the world, has been hampered. The phase-one deal recently reached between the two sides will help improve the global environment.
In addition, in December 2019, British Prime Minister Boris Johnson and his Conservative Party swept general elections and are now in the midst of passing the Brexit bill, which will help stabilize market expectations and boost confidence by shaking off uncertainties brought about by the prolonged Brexit process.
Meanwhile, the stimulus policies taken by several countries are gradually taking effect, as more policies were introduced last year to encourage economic growth. Central banks have resumed monetary easing policies, while more than 30 have cut interest rates and expanded the balance sheet, injecting liquidity into the weak real economy. Among them, the U.S. Federal Reserve lowered interest rates by 0.75 percentage point in three cuts. Some countries have also adopted expansionary fiscal and tax policies, increased public investment and carried out structural reforms, which are conducive to long-term growth.
The U.S. economy is showing signs of improvement with stronger consumption, which has pulled it out of its slump in the second and third quarters of 2019, as steady growth in major economies is being seen. In addition, cyclical factors such as inventory adjustment and housing investment recovery have helped.
China is committed to high-quality and sustainable growth. With a series of countercyclical measures to stabilize the economy, it is expected to maintain a medium-high growth rate of 6 percent in 2020 and become the mainstay of the world economy.
The situation in Europe is also improving, with the International Monetary Fund (IMF) predicting a 1.4-percent growth in the euro zone this year. Emerging and developing economies such as India, Brazil and ASEAN countries will recover from last year's low growth rate and become the main engines of the world economy, with the IMF projecting growth in these economies to increase from 3.9 percent in 2019 to 4.6 percent in 2020.
Alphorn players perform at the opening ceremony of the 49th Annual Meeting of the World Economic Forum in Davos, Switzerland, on January 22, 2019 (XINHUA)
Major economies such as the U.S., China, Japan and the European Union account for half of the global economy. However, as the main drivers, they may maintain a medium-low growth over the next few years, making it difficult for the world to return to its previous performance levels. Among them, the U.S. economy, after 120 months of growth, is at a low ebb.
The world economy has moved into a new mediocrity, with major economies facing population aging, insufficient productive investment, a widening wealth gap and a declining science and technology contribution rate. All of these factors will lead to lower growth potential, a major constraint for future progress.
Since the 2008 global financial crisis, countries have continued to expand their currencies on a large scale, and the issues of high debt, leverage and asset prices have become prominent. At present, total global debt exceeds 300 percent of the world GDP, which is a tough issue to solve, as major stock and bond markets are overvalued. At the same time, as the world economy is in the doldrums, low inflation is persistent. Structural problems in the international financial system have risen, becoming a major hidden danger.
The space for monetary policy has contracted dramatically, as a dilemma emerges. If countries further ease their policies, financial bubbles may be inflated. But if they choose to tighten policies, a crisis may be triggered. Fiscal easing is unlikely to deliver good performance because of high debt stock. The Yellow Vest movement in France is an example of the hardships awaiting structural reform. Countries have almost run out of stimulation for their economies.
Under the banner of America First, U.S. President Donald Trump has been withdrawing from several agreements concerning climate change and free trade, and has been drifting toward protectionism. Though the trade war with China has reached a cooling point, there are still uncertainties ahead. Meanwhile, trade frictions between the U.S. and Europe are heating up again. The U.S. has effectively shut down the World Trade Organization dispute settlement system, global populism is on the rise, and trade and investment protectionism is soaring.
According to Global Trade Alert, an organization offering information on international trade barriers, a total of 2,723 policies and measures have been enacted to restrict cross-border commerce from January 2017 to November 2019, with China being the biggest victim. The rule-based global system of multilateral free trade has taken a battering.
As a global leader, the U.S. has even become reluctant to provide public goods, which has had a negative impact on the stability of the world order established after World War II. Moreover, the reform of the world economic system is still up in the air under the resistance of vested interests in Western developed countries. In 2019, the IMF's 15th quota reform failed. With the rise of China and other emerging economies, the tug of war between existing hegemonic powers and emerging countries will become more complex and intense with possibly more geopolitical and economic conflicts.
A shared future
There are still numerous long-term and potential issues waiting to be solved. Measures should be taken to address them.
Countries should step up structural reform. Monetary, fiscal, economic and trade policies and other countercyclical measures cannot solve real problems. Measures must be taken to advance structural reforms to address profound social and economic issues such as the wealth gap, heavy debts, shrinking labor forces, climate change and the challenges posed by a new wave of technology industries.
The international community needs to bridge differences, rebuild global consensus and jointly promote global governance reform. In the face of profound changes unseen in a century, we must have the determination to take unprecedented measures. No country is immune to the current turmoil; the pressing task for all is to jointly bring the world economy back on track to recovery and prosperity.
Only by forming consensus can we work together to meet challenges. In this regard, a series of concepts proposed by Chinese President Xi Jinping at the WEF Annual Meeting 2017, such as building a community with a shared future for humanity and promoting common development, have been echoed by the international community. China has not only put forward new proposals, but also put them into practice. In recent years, it has carried out Belt and Road cooperation and taken concrete actions to build partnerships.
Countries should abandon Cold War thinking, avoid the trap of hegemony and instead, advance international cooperation based on consultation and for shared benefits.
The author is an associate researcher with the China Institutes of Contemporary International Relations
Copyedited by Rebeca Toledo
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