LEXINGTON, Mass.--(BUSINESS WIRE)--Global economic growth may remain stuck in low gear for several more years, though a worldwide recession is unlikely, according to the third quarter IHS Global Risk Service report from IHS Markit (Nasdaq: INFO).
Global economic risk, as measured by the IHS Global Risk Service short-term risk index, has been rising since late 2014 and now sits at elevated levels compared to its pre-Great Recession readings. This is indicative of increased investment risk in light of economic and political uncertainties. Given the current environment, it is unlikely there will be a substantial decline in the index in the near term.
“Weak global economic growth and high world debt and unemployment rates mean the ongoing economic expansion could be derailed by shocks, such as a banking crisis, social turmoil and geopolitical conflicts,” according to Farid Abolfathi, senior director, IHS Markit. “Furthermore, the reduced lending capacity of the global banking system since the Great Recession and Eurozone sovereign debt crisis mean global economic growth could remain below its potential for several more years.”
On the economic front, central banks have managed to contain the risk of another worldwide recession and financial crisis during the past seven years, but have done so by employing unorthodox policies. Also, the effectiveness of their policy measures seems to have greatly diminished. Meanwhile, global GDP growth has decelerated to dangerously low levels owing to structural and institutional problems that have eroded productivity growth and depressed business profits and investment, according to the report.
On the political front, although risks are still low by historical standards, they have risen considerably in many developing countries such as the Democratic Republic of the Congo, Brazil, Burundi, South Africa, Turkey, and Venezuela owing to increasing political instability and violence, the report says. Political risks have also increased significantly in some advanced economies such as the United Kingdom and the United States.
“Growing income gaps and poor employment prospects for large segments of the world population have increased social tensions and raised the risk of political instability and turmoil,” Abolfathi said. “It is also worth keeping in mind that dealing with the Great Recession and Eurozone crisis has greatly diminished the capacity of governments and civil societies for addressing social and political problems, which can lead to escalating sociopolitical tensions and government destabilization.”
The regional short-term risk index for six of the eight regions covered by the IHS Global Risk Service rose: Asia-Pacific, Middle East and North Africa, Sub-Saharan Africa, Central Europe and the Balkans, Commonwealth of Independent States and North America. The index fell for only two regions: Latin America and Caribbean and Western Europe.
The IHS Global Risk Service provides risk scores across 150 countries for 54 risk factors and 12 investment types. The risk factors include direct risks to cash flow, such as an increase in the capital gains tax, as well as broader risk events, such as a military coup.
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