June 29, 2010World Economyby EconomyWatch

Current Global Economy

The current global economy has become a level playing field for all countries on account of the domino effect of “globalization.” Healthy interaction between the developed and the developing countries in the field of trade and the exchange of technological know - how has helped the global economy prosper remarkably. There has been a significant growth of real Gross Domestic Product (GDP) in most countries of the world and a consequent rise in the global income levels.

Current Global economy refers to the current trends of the global economy over a period of time. Globalization has made it possible for domestic producers to expand and emerge on the international scene. Therefore it has been possible for consumers to choose from a wide range of local and imported commodities.

The following are some of the important features observed from studies on the current global economy :

The current global economy is in a relatively stable stage with the economies of US and Japan showing an upward growth trend in recent years. USA had experienced a healthy growth rate of 3.5% for the year 2005 and 5% for the first quarter of 2006. However, this rate of growth could not be sustained due to the continued rise in global oil prices and the widespread devastation caused by hurricane Katrina. Adoption of sound monetary and fiscal policies by the US Government has once again brought back stability to the growth rate. In Japan, the economy has got a major boost with phenomenal growth rates experienced by its long trading partner, China. Europe as a whole, had also grown marginally over the past few years with some countries of the European Union recording unprecented rates of growth. Major free trade agreements like the NAFTA (North American Free Trade Agreement) and SAFTA (South Asian Free Trade Agreement) have been signed in the current years as a means to boost international trade, worldwide. The “dollarization” of world currencies, has helped economies measure its currencies against the US dollar. This has in turn led to reduced independence of the monetary policies of these economies. The dollar which was especially strong in the 1990’s has followed a yo-yo path ever since with alternative periods of depreciation and appreciation from 2002 till date. China has recently adopted a major monetary reform with pegging the Renminbi or Yuan to a basket of currencies. The Indian Rupee is also showing positive signs of appreciating against the dollar. Other world currencies such as the Yen and Euro have been relatively stable over the past few years.

Global Stock Markets have also rallied to reach unheard of levels after the US slowdown of 2001. Although NASDAQ and NYSE underperformed in the year 2002, rising corporate profits as a share of GDP coupled with general political stability in the major economies have ensured that the stock indices do not plummet.

Sensitive issues surfacing in the current global economy as a result of globalization needs to be addressed collectively and effectively by all nations of the world. Such issues include rising income inequality in developing economies like India, China, Brazil and Uruguay and strict immigration laws applicable in some developed economies. Rationalization of domestic tax laws, tariff and quota laws in accordance with international regulations have to be implemented in all countries uniformly. The Doha round of World Trade talks therefore requires to be effectively implemented as soon as possible.

We live in a free world market with access to an endless production and consumer base and the current global economy has come a long way from the Asia Currency Crisis and the Latin America Currency Crisis of the 1990’s. Economic growth is often associated with high inflation levels and it has often been the case in recent years for the current global economy also. However, inflation is not good for the health of the economy in the long run and has to be effectively dealt with.

How long can India and China sustain this surge in growth rates and how far the developing world will be able to appropriate the benefits of globalization equitably is the million dollar question being put forward before leading economists of the world.

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