Global Economy | Article Review

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GLOBAL ECONOMY Article 1
RBA Governor, Philip Lowe, has mentioned about downside risks to the global economy
that would lead to a slower global economic growth. As the global economy is moving forward,
there are certain on-going economic phenomena that are creating severe downside risks for the
positive and steady growth of the international economy. According to Lowe, the US-China
trade war, trade restrictions and slower growth of China and Brexit related uncertainties are three
major risks that are affecting the global economic growth in a significant manner (rba.gov.au
2020). These phenomena are interrelated and therefore have multiplied impact for slowing down
the global growth and increasing financial vulnerabilities. The trade war between the US and
China has quite negative effect on the global trade, as that is not only affecting the trade flows
between these two nations, but also slowing down the global trade flows as well as investments
through the increase in the trade barriers. The on-going uncertainties about the trade policies are
risks for jobs, living standards and international investments, as higher restrictions imply
reduction in investments and job opportunities and decline in living standards, coupled with
higher business production costs (imf.org 2019). A trade agreement between the US and China in
the near future is also uncertain regarding the terms and restrictions, which would affect the
trade-dependent industries, such as, automobile and its parts. According to IMF, the increased
tariffs between the USA and China are estimated to cut the global GDP by 0.5%, worth of US
$455 billion in 2020 (Aruna 2019).
Secondly, the Chinese economy suffered from a major and sharp slowdown due to the
trade war and its trade partners are also suffering from the blow. According to OECD (2019), a
fall of 2% points in the domestic demand growth in China for consecutive two years would
reduce the growth of global GDP by around 0.4% in the first year, and the impact would be

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GLOBAL ECONOMY
higher on the economies of East Asia, especially the commodity producing countries and Japan.
In the global economy, the spillovers from the Chinese slowdown are creating uncertainties
regarding the investment level and the returns. Thus, volume of trade and investments would fall
for the trade partners of China across the world, which would affect their domestic economic
condition, if the Chinese slowdown continues.
Thirdly, the Brexit related uncertainties are another risk factor for the global economy.
The uncertainties regarding the terms of exit of the UK from the EU arise from various
dimensions and these also have effects of different magnitude on different sectors of the
economies. The major blow would be faced by the export and import sector of the UK and the
trade partners of the UK would also face the rippled effects. It is assumed that after Brexit, the
UK would come under the rules and regulations of the WTO and that would imply rise in the
tariffs, which would reduce the GDP of the UK by approximately 2% in the coming two years.
OECD assumes that this would have adverse impact on the level of trade ad investments not only
in the UK, but also in the global economy (Oecd.org 2019).
Thus, there are significant financial vulnerabilities in the global economy, and there are
multiple factors that create risks, such as, debt burdens, lower interest rates, expansionary
monetary policy and repricing of the financial markets. However, trade restrictions, the US-
China trade war and Chinese economy slowdown and Brexit uncertainties are the major ones that
create immediate risks for the global economic growth.