Current Risks in the World Economy

The political and economic situation in the world is in constant flux with a lot of local and global events having their impact on the situation. We talked to Business Sweden Chief Economist Lena Sellgren about the current situation regarding the world economy and the risks to look out for.

The biggest risks in the world economy at the moment

Looking at the 2019, what would you consider to be the biggest risks in the world economy at the moment?

The most important factor is the slower growth that we are having on a global scale. All the indicators are currently telling us that we are slowing down quite fast, especially in the industry section. The second half of last year was weaker than expected, but we don’t see us going into recession quite yet.

When we look at Europe and the global field, US and China, there’s so much happening at the moment and the coming years will be bumpy on both sides.

Brexit is one of the risks we obviously cannot look past. It could be a managed crisis, but there’s also the possibility of a disaster if a common solution isn’t found.

Debt crisis a severe risk

However, in my opinion, the current debt crisis in Italy is a more severe risk than Brexit. It will be more costly and a lot of investments have already been lost due to the situation.

With the third largest economy in the EU having a huge public debt and what we can well call a crisis, both economically and politically, we could end up in a very bad situation. We already see the volatility in the financial market and that is worrying big banks and economists around Europe.

It’s important that when we look at Europe and the southern European countries with high debt, including France, we also look at the means how they could manage the situation and proceed with structural changes to solve it. If they don’t succeed, it could mean slow development for all of Europe.

Most European countries still have positive growth. World trade will also slow down but is still at healthy levels. The indicators are showing us that despite struggles, we are at satisfactory levels at the moment. But we need to be able to change the direction going forward or we could have a bad situation at our hands.

Most European countries still have positive growth.

Business Sweden Chief Economist Lena Sellgren

Any positive news on the European economy?

We made some rather big trade agreements last year like the Comprehensive Economic and Trade Agreement between EU and Canada as well as the EU-Japan Economic Partnership Agreement.

We can also see a lot of interesting possibilities when looking into the global technology shift we are in. We are moving fast towards a highly connected society, where we need to both communicate and produce in new ways and where humans and machines work more seamlessly together.

At Business Sweden, we see a services revolution happening and the need for new business models. To be able to create business on these new technologies and connectivity, we need to match the competence in engineering, IT and in business and technology consultancy. If we take advantage of the global technology shift and new services we can increase our productivity across all industries.

Companies have to know how to handle risks

There is huge potential, but along with it some big challenges to be acknowledged as well – cyber security, the amount of data and handling it the right way as well as regulations to create some common guidelines.

Amid being a global, imminent challenge, climate change also possesses a lot of possibilities when looking into more sustainable ways to do business and production.

The times we are living, contingency planning and protecting from business interruption are increasing in importance. Companies have to know how to handle risks and have a way to respond to the volatility. The financial sector and insurance companies play a big role in this – both understanding the risks as well as helping companies manage them.

Some of the most important factors for world economy

Looking into the near future, what do you consider to be the most important factors for world economy?

Looking ahead, we can recognize the trend and negative effect of the ageing population in the more advanced economies. When looking at developing economies, such as India, Indonesia and Vietnam, with a lot of young people driving the demand and change, they are going for strong growth.

The US economy is always interesting to look at. They currently have good employment and high growth rate, but a slowdown is expected after this year and the Federal Reserve might have to stimulate the economy - the current set-up not being sustainable in the long term.

Globally we are seeing debt increase not only in the US, but also in Japan and China as well as the ongoing threat of conflict on economic power between the two big players.

The fact is, that the economic power is fast moving to the East, and with economic power the political follows. Today we have more than half the global GDP in America and in Europe, but in 30 years we are looking a shift into Asia. We can’t change this, but we can understand and adjust to it.

In my perspective, it’s important to keep in mind, that in most countries we still have positive growth. We are slowing down and there are several risks to the global economy, but we have good activity and a lot of new opportunities. The key is acknowledging the risks but focusing on the possibilities taking us forward.

Article by

Ida Tuononen