By Wang Yiming

Research Report Vol.21 No.3, 2019

The current world economy is filled with risks and challenges as well as new opportunities. In the medium and long term, global economic trend depends on technological evolution, restructuring of international trade rules and adjustment and upgrade of globalization. These three forces will determine the medium and long-term development of global economy and shape the new world economic order.

I. Being Alert to Major Risks of world Economy

Global economic risks are concentrated in the following aspects:

First, frequent trade frictions shock global economy. Trade cooperation in the past 30 years has helped the world achieve unprecedented economic growth and prosperity, but the unilateral trade protectionism upheld by the Trump administration is dealing a serious blow to the trading system that bolsters such achievements.

Second, rising global debts add to financial risks. Global debts are on the rise despite a reduced growth rate and especially the effective control of China’s debt rise. As high debts are very sensitive to interest rate change, those emerging economies that borrowed large amounts of US dollars at an extremely low interest rate will face the pressure of home currency depreciation and capital outflow against the backdrop of strengthening US dollar and rising interest rate in the international financial market, which will trigger financial turmoil.

Third, growing difficulty in coordinating international economic policies impedes global recovery. The international economic and trade rules are undergoing a new round of reshuffling while competition among different countries is more intense. Developed economies want to establish new rules and systems that cater to their interests, but cannot really play a dominant role due to their weakening economic strength. In this process, some existing economic governance mechanisms like WTO cannot function well, and the mechanisms like the G20 can hardly play a significant role in coordinating international economic policies.

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