America's recovery faces global obstacle
America’s recovery faces global obstacle
As the world’s largest economy, the U.S. is truly an economic behemoth. It is 46% larger than No. 2 China and nearly the same size as the third through tenth largest economies combined. With just 4.25% of the world’s population, the U.S. accounts for nearly 25% of the world’s total economic output.
In recent years, the U.S. economy has used its sheer size and strength to muscle its way through some hefty challenges. Despite a very weak global economy and our trade disputes with China, Canada, Mexico and the European Union, the U.S. economy and labor market remained highly robust in 2018-19. But the U.S. economy is not infallible. The COVID-19 pandemic has imposed a punishing impact on our nation.
When we digest the economic data over the past four months, the low point appears to be in April – at the height of the government-imposed restrictions set in March. As restrictions have gradually eased, the economy and labor market have rebounded, though far from their pre-COVID-19 levels. However, as the American economy begins its recovery, it must address a component that is largely out of its control – the global economy.
The U.S. economy is built for, and relies on, trade. America is the largest trader of goods and services in the world. U.S. exports of American goods and services typically account for 13% of our total economic growth. But in recent years, the global economy has struggled. After recording a robust 3.8% growth rate in 2017, the global economy started to weaken in early 2018 and continued to worsen. In 2019, global economic growth was just 2.9% – the lowest rate in more than a decade.
2020 was to be a year of optimism for the global economy. In January, the International Monetary Fund (IMF) projected global economic growth to jump to 3.3%. But then the global pandemic hit.
Recently, the IMF came out with some sobering commentary on the state of the global economy. Citing “an unprecedented decline in global activity due to the COVID-19 pandemic,” the IMF downgraded its forecast for global economic growth on concerns the virus has had a greater impact than previously expected. The IMF lowered its 2020 projected economic growth rate to -4.9%, down from its -3% forecast in April. This would be the slowest pace of global economic growth since the 1929-39 Great Depression.
Global trade is expected to be another casualty of the COVID-19 virus. Global trade growth of goods and services fell from 5.7% in 2017 to just 0.9% in 2019. This year, the IMF projects a global trade growth rate of -11.9%, reflecting weaker demand for goods and services.
Yes, America’s path to economic recovery has started. But what lies ahead is fraught with numerous challenges and obstacles. Unfortunately, any assistance from the broader global economy might be minimal, at best.
Mark M. Grywacheski, Investment Advisor
Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets, or developments mentioned.
Quad Cities Investment Group, LLC is a registered investment advisor with the U.S. Securities Exchange Commission.
