Is the next financial crisis coming closer? Will the global economy start plunging? What are the possible drivers/warnings which make us reach this thought?
Here are some caveats for a possible global financial crisis:
US Market plunge
Recently, US Dow Jones index went down by more than 3.15 % which was the steepest single-day drop since early February 2018. This fall was followed by the announcement of US Federal Reserve of increasing interest rates.
This can put the business people under pressure to get debt funding. Us China trade war is also one of the reasons for the market plummet.
Emerging Market decline
Emerging markets (EM) are fundamentally in structural decline. All economies in the world are interconnected. It is like a Domino if one falls it will also lead to the fall of the other one. Highly Contagious. The recent currencies to fall where Indian rupee and Indonesian Rupiah, touching new lows. Drastically affected countries where Turkey and Argentina. Both these countries and other peers are witnessing the same issue. Dollar prices are skyrocketing while depreciating the other currencies which are denominated in terms of USD. EM economy takes loans from the US in USD at a lower interest rate with an aim of higher yield from their own country. This greediness has now resulted in danger of the financial system. The US banks which provided the loans to these EMs are suspected to witness a huge pile of bad loans very sooner breaking the financial stability of the US.
With the growing USD price rate, there is an upholding strategy from most of the countries to increase the supply of their currencies by printing new notes. The moto is to suppress the rising USD rate compensating the debt repayment. But as per the cycle of Inflation, if currency supply is increased then it leads to a further increase in the prices of goods. This is one of the reasons for making Crude Oil an expensive commodity for major importers of the world. Crude Oil hits more than $84 per barrel after Trump induces extreme pressure on Iran’s Oil Supply. This puts the OPEC to produce more Oil supplies as to suffice the global crude demand.
US-China trade war
US government after the very realization of the fact that they were experiencing a huge trade deficit with China over the years made Trump uncomfortable. The US Prez announced tariffs on Chinese goods that were imported to the US. Trump initiated this step to pamper his domestic economic growth. Chinese government as a result of this tariffs experienced a lower trade revenue for over months, hence they too started to retaliate by imposing tariffs on US goods imported to China. This becomes a tit-for-tat game. This leads to a global trade war, wherein the US allies and Chinese allies fight confront one another by throwing tariffs imposition.
Brexit is expected to commence its execution by March 2019. This will have a huge catastrophic impact on World trading activities with UK and EU, as EU remains the UK largest export Market by some margin. Also, Italy creates a huge risk to the stability of the European financial system with a huge amount of that level it is carrying. Experts say that a financial crisis in the EU will have a serious risk to the Global Outlook and it also needs to be noted that the UK would not be immune irrespective of Brexit.