Will The Global Economy Collapse?

In recent months, the global economy has been on shaky ground. Various factors — including trade tensions, a global slowdown, and political instability — have contributed to concerns about a potential collapse. So far, the world has avoided a full-blown crisis. But unless policymakers take action to shore up the economy, things could still go downhill from here. If you're worried about the future of the global economy, here's what you need to know.

First, some background. Economic growth has been slowing for several years . Economic expansions after World War II used to last about five years before they cooled off and started the cycle again. In recent decades, that period has been shortened dramatically. A growing chorus of experts believe we've entered a period of "secular stagnation," which means slow economic growth is the new normal.

The Economic Slowdown Is Driving Economic Anxiety:

Although unemployment has fallen to record lows in several countries, businesses have been receiving fewer job applications because there are fewer people looking for work. That suggests workers are too discouraged to look for jobs or are settling for part-time positions.

Falling birth rates around the world exacerbated the problem. Economic growth requires new workers to replace those who retire, but many countries are seeing net declines in their populations . That means the working-age population is shrinking even as the number of retirees increases.

A slowdown in productivity has pushed economic anxiety into overdrive. Productivity gains used to boost living standards by increasing workers' output per hour. But today, increases in productivity are increasingly matched by wage growth.

This is the Economic Slowdown We're Facing:

There are several factors that could further undermine global economic growth . They include:

Higher interest rates : The Federal Reserve has hiked rates seven times since 2015 to cool off an overheated economy. Yet many experts believe monetary policymakers haven't gone far enough.

Trade tensions : Economic growth in the U.S., Germany, and China have all been affected by an escalating trade war between the world's two biggest economies. The conflict has already pushed up steel prices , for instance, and threatens to hike consumer prices further if it isn't resolved soon. A full-blown trade war could undermine economic growth.

A global slowdown : Economic growth in Europe, Japan, and China has all softened recently . Economic expansions usually move in lockstep around the world because trade ties countries together. If one strong economy slows down, it can drag others down with it.

Political instability: Economic anxiety is also tied to growing political instability around the world. Economic turmoil is often a byproduct of political conflict, and some experts worry that civil unrest could erupt if governments fail to address this issue .

What Economic Collapse Would Look Like:

An economic collapse doesn't just mean more unemployment — it's also associated with widespread social unrest. Economic anxiety is already high in many countries around the world, including the U.S., Germany, and China. Economic collapse would only drive that anxiety higher .

If the global economy were to fall apart, these three things are likely to happen:

1. Economic growth will drop even further.

Trade wars could raise prices of basic necessities like food and clothing while eroding economic confidence worldwide. If the world doesn't find a way to fix this problem, global economic growth is expected to fall below 3% in 2020 and remain stagnant over the long term . Economic anxiety would worsen as more people feel like they're being left behind.

2. Unemployment will climb.

The collapse of the global economy would erase decades of progress. Economic growth has been one of the few bright spots in recent years, especially for people with less education or who live in developing countries. Economic collapse would reverse that progress.

Unemployment rates are already high in some countries, including Italy and South Africa , where millions of people are looking for work but can't find it. Economic collapse would make the problem even worse .

3. Economic inequality would widen to dangerous levels.

The global economic slowdown is already exacerbating economic inequality, especially in the U.S. Economic collapse would make it much worse . Economic anxiety and political instability could prompt wealthy investors to withdraw their capital from troubled regions — leaving those regions even worse off than before. Economic collapse could also exacerbate social unrest and political instability — especially in countries with high levels of inequality. Economic collapse would make these problems even worse .

4. COVID Lockdowns.

The current pandemic has been exacerbated by lockdowns across COVID cities. Economic collapse would make COVID lockdown worse , especially in the U.S., where emergency management agencies were already criticized for how they handled Hurricane Maria recovery efforts . Economic anxiety could also exacerbate this issue further, because people who are concerned about their livelihoods are less likely to have access to basic necessities. Economic collapse would only heighten this crisis.

5. Civil Unrest.

Economic anxiety is tied to growing feelings of civil unrest in the U.S., Germany, and China. Economic collapse would only worsen these problems , especially in countries with high levels of inequality like South Africa. Economic instability has already driven up rates of violent crime across the African continent , and economic collapse would worsen this issue further . Economic instability could also exacerbate social unrest and political conflicts in countries like Italy. Economic collapse would only make these problems worse.

Conclusion:

The global economy is like a house of cards. It's fragile and yet we are so heavily dependant on it for our survival. Whether it will collapse or not, only time will tell.