Top 7 risks to global economy
Is the global economy heading toward yet another crash? At least, there's been enough market turbulence to think so. The number of potential risks has increased in recent months — here are the greatest perils.
1. High debt levels
Since 2008,the world's aggregate debt has increased by 60 percent. There's a hole of $182 trillion (€158 trillion) in public and private coffers to be plugged. People are wondering whether there are any funds left to soften the impact of a potential economic downslide.
2. Reeling emerging economies
Emerging markets account for about 40 percent of global economic output, but they are highly vulnerable. Many of these nations crank up their economies with the help of foreign, mostly dollar-denominated funds. But when US interest rates go up, that system is on shaky ground amid capital outflows. Argentina knows what we're talking about, so does Turkey.
3. US economy to peak soon
US President Donald Trump is still able to make the American economy boom with tax breaks and trade barriers. But many companies are increasingly reluctant to make big investments with all the uncertainty around. The IMF believes that from next year on, economic expansion will slow after reaching a peak in 2018.
4. Trade conflict
Meat and vegetables from the US — Steel, textiles and technology from China. Washington and Beijing have slapped tariffs on each other's products worth $360 billion. According to the IMF, that's already shaving 0.9 percent of GDP off the United States' output and 0.6 percent off China's GDP. Should the bilateral trade conflict escalate, global trade volumes would decrease by 17.5 percent.
6.Failing banks
Shadow banks engage in financial dealings outside the regular banking sector. ECB President Mario Draghi says such shadow banks account for 40 percent of the financial system in the EU. Even many regular lenders sit on buffers too small to weather a financial crisis. Some tend to ignore the lessons from the collapse of Lehman Brothers some 10 years ago.
6.Hard Brexit
Time's running out, but there is still no agreed plan as to the modalities of Britain's exit from the EU in March 2019. Without a free trade agreement,German firms alone would have to pay over €3 billion in tariffs annually. Border checks would jeopardize "just-in-time" production. Carmakers such as Nissan,Toyota and BMW would likely need to close down factories in the UK.
7. Italian government policy
Will we see a eurozone crisis reloaded? Populist parties in Rome are pushing for a universal income and a lower retirement age, despite the country logging the EU's biggest debt at around €2.4 trillion. Italy's government debt-to-GDP ratio stands at a troubling 130 percent. Former problem child Greece has only just returned to capital markets and is aiming to rid itself of toxic credits.