Thousands of people in London attended the “March for Europe” Brexit protest in early July 2016, shortly after the Brexit referendum on June 23. However, doubts about European integration remain, inhibiting the EU’s recovery. Photo: JIANG HONG/CSST

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Despite the consolidation of the factors that have contributed to its recovery, the world economy is still facing multiple pressures, according to the L’économie mondiale 2019 published recently by the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII), a French research center for the world economy.

Judging from the statistics published by international agencies, the global economy has indeed entered a stage of full recovery in 2018, and factors like trade activities and business investment that can promote economic recovery have all restarted, said Isabelle Bensidoun, a CEPII research fellow. Around the world, the unemployment rate has shown a downward trend, and the increase in employment rate has enabled more consumption, which also enhances investors’ confidence in the market.

The major economies in the world are experiencing a synchronized upturn. After years of slowdown, the developed economies’ investment activities have once again returned to the level that can drive economic growth. In addition to investment, other factors also help developed countries maintain the current economic recovery. These factors include: macroeconomic policy adoption, improved labor market conditions, and credit-friendly fiscal, taxation and financial conditions.

The economic activities of many European economies have stabilized, and their economic growth is mainly driven by domestic demand. The increase in credit volume will also help European banks rebuild their profitability.

Although the recovery of the world economy can be considered to have stabilized, there are still risks, said Jézabel Couppey-Soubeyran, a lecturer in economics at the Université Paris 1 Panthéon-Sorbonne.

Although inflation levels have improved in developed economies, potential inflation levels remain low after excluding the effects of energy and food prices. The potential inflation level reflects the long-term trend of the general price index after the temporary price fluctuation component is removed in the changing process of the traditional price index. At least, the potential inflation level is still sluggish from the long-term trend, Couppey-Soubeyran said.
After the financial crisis, especially after the European sovereign debt crisis, Europe and the United States have adopted a relatively loose monetary policy to stimulate economic growth. However, how to normalize monetary policy while maintaining economic growth and financial system stability and avoiding economic overheating has become a challenge that the European Union (EU) and eurozone must face. This task is not easy to accomplish, especially when aging population and unstable employment hold back the growth of wages and hinder the inflation rate from quickly reaching the expected level.

The large-scale implementation of trade protectionist measures by the US government affects almost all countries that have trade relations with the United States. The risks of a trade war are real and may have a devastating effect on the world economy.

The EU’s recovery is tarnished by doubts about European integration. Under the influence of the sovereign debt crisis, the refugee crisis and Brexit, the necessity and possibility of European integration have been questioned. The single currency system in the eurozone needs reform, and a stable mechanism and a budget transfer system must be established to deal with cyclical shocks.

However, whether it is to establish a fiscal system that can give the EU a large common budget or to establish a common insurance mechanism, such reform is difficult to achieve on the political level in the short term. In order to ensure a true recovery of the economy, Couppey-Soubeyran concluded, it is necessary not only to continue the reforms related to the euro, but also to restore support for European integration in the EU.

 

(edited by JIANG HONG)