The world economy, according to the latest estimates, has greatly slowed its pace of growth, which is significantly below expectations.
In June 2015, the World Bank published its data on global growth in 2014, which it estimated to be only 2.6 percent, while the International Monetary Fund’s (IMF) data from its April 2015 World Economic Outlook showed growth to be 3.4 percent. These both testify to the sharp slowdown of global development and to the excessively optimistic current expectations of international organisations.
World economic dynamics show that in major developed economies – the U.S. and the Eurozone – growth until recently had not been accelerating as had been forecast by the international organisations, but rather is stagnating at a low level (as in the Eurozone) or slowing down to values significantly lower than expected (as in the U.S.).
Forecasts by the Kazakhstan Institute for Strategic Studies (KISI) under the President of Kazakhstan suggest that the growth rates of the leading advanced economies in 2015-2017 will be significantly below those which currently appear in the forecasts by the IMF, the World Bank and the Organisation for Economic Cooperation and Development (OECD).
During the considered-time horizon, it is possible as well to expect phenomena significant for the world economy, such as stagnation in the financial markets, change in the rhetoric of the United States Federal Reserve System (FRS) towards new mitigation of the monetary policy, depreciation of the dollar, growth of the price of oil in 2016-2017 and nearing of growth rates in the economies of the Eurozone and Japan to zero levels with a subsequent slide into recession by 2017.
In 2016-2017, global factors will have a rather negative impact on developing economies as slowing growth and restricted demand in developed countries will put pressure on export and manufacturing and the stagnating environment of the commodity markets does not favour high growth rates for commodity-based economies. Thus, there remains a probability of further expansion of the global financial crisis, which hits emerging markets the strongest.
Thus, we view the world economy’s prospects in the medium term as rather negative, and believe the current trend of growth stagnation in the leading economies, with the accumulation of a number of unsolved fundamental problems, can result in further deterioration of the global economic situation. Therefore, the major global economic challenge today remains a systemic economic crisis, which has continued since the late 2000s and still determines the development of many of the leading countries of the world.
We believe this crisis is both cyclical and structural. It is associated with the passage of the world through a deep institutional and technological change with the change of the technological base of the global economy.
In general, as history shows, during any systemic crisis there is a change of the model of social and economic regulation. So, the American Great Depression of the 1930s resulted in a transition to a new industrial stage of development. The energy crisis of the 1970s led to the transition to a post-industrial phase.
Today, as we see, the role of global and national regulation of the financial markets is increasing. Financial systems have become global, easily flowing from one region to another, and their regulation remains a subject of care for the national governments. This is one of the contemporary age’s main structural contradictions that cannot be solved straight away by creating supranational regulators.
Therefore, it is important to develop a mechanism for regulating global finances in the absence of a global government, a proposal that has been repeatedly voiced by Kazakh President Nursultan Nazarbayev in various international fora and in his writings.
This is evidenced by the unfolding weakening of national currencies in many countries of the world. This year has seen the weakening not only of the Russian rouble but also of the Chinese yuan and the currencies in Canada, Australia, Norway, Turkey, Brazil, Colombia, Malaysia, Indonesia and Ukraine.
The devaluation of the yuan by 4.6 percent, conducted by the National Bank of China in August of this year, will certainly have the greatest impact on the global economy. According to KISI analysts, it resulted from the effects of a number of problems in the Chinese economy (first of all, systemic and fundamental ones) and also the adverse external background.
Generally, the current crisis raises the issue of a new global financial architecture. As a result of the crisis of the 1930s, the world was formed with a single reserve currency — the U.S. dollar. After the crises of the 1970s, there has developed a dual-currency system (dollar and euro).
Probably in the medium term, the role of the Chinese yuan and regional reserve currencies will increase. Regional trade and economic associations are beginning to play an increasingly important role. The specific of our time is “regionalisation of globalisation” that can affect the configuration of currency systems.
Thus, it is possible to conclude the financial crisis is an essential element of the current crisis. And the confluence of two crises upon each other complicates the return to a trajectory of steady growth, as well as causes a need for implementing significant structural and institutional reforms.
Besides, the current crisis also differs from previous ones as it is accompanied by an increase in international and geopolitical tensions. We are witnessing serious geopolitical and geoeconomic shifts in the world today and the new balance of forces in global politics is being created. With the development of the situation, contours appear of a multi-polar world in which two or three key economic centres will coexist.
These are the common characteristics of the current global economic situation. But, like any economic phenomenon, the economic crisis also has positive sides along with negative effects.
So, the positive effect of the current crisis could be the formation of a new model of economic growth, envisioning structural modernisation in both developed and developing countries and the creation of new technological drivers. History shows that after crises, new industries take shape, creating the preconditions for the emergence of new challenges and instruments of economic policy. In other words, in the end, the current crisis could bring the global economy to a qualitatively new level of efficiency and productivity.
A systemic crisis cannot be overcome by measures of macroeconomic policy alone.
As the new technological base is created today in the world economy, both structural and institutional decisions providing modernisation of national economy are important.
On the other hand, such crises create preconditions for economic breakthroughs in individual countries. Those that manage to most precisely understand the challenges of the new era and to find adequate answers to them (first of all, institutional responses) earn their chance for a breakthrough. It was through systemic crises that some of the brightest moments of acceleration of certain countries’ development occurred, bring them to join the ranks of advanced countries. No matter how hard the crises had been, market economies always emerged out of them stronger and more competitive.
Therefore now, at this stage of the crisis, it is very important for countries such as Kazakhstan, which want to significantly enhance their competitiveness and achieve a higher level of economic development, to develop an appropriate development strategy and take active steps not only to overcome and prevent the negative impact of the crisis, but also to implement a strategy of economic breakthrough.
In this sense, the Five Institutional Reforms proposed by President Nazarbayev cannot become just an effective mechanism to respond to the current crisis. They contain a verified step-by-step plan of recovery from the global crisis that includes the use of resources of the National Fund. Kazakhstan’s strategic advantage lies in the offensive nature of anti-crisis measures, as it prepares a platform for an economic breakthrough in spite of the difficult situation in the global economy.
The author is first deputy director at the Kazakhstan Institute of Strategic Studies (KISI) under the President of Kazakhstan.