The global economy is on the verge of facing a new cyclical economic slowdown, with its probability only increasing, Director of FBK Grant Thornton Strategic Analysis Institute Igor Nikolaev said addressing the meeting of FBK’s Economic Club, Coronavirus, Crisis and Other Black Swans of 2020.
“The world economy is nearing a crisis. This is nothing new; the situation was obvious 1.5-2 years ago and has unfolded since then,” Igor Nikolaev believes.
He reminded that since the 1970s, cyclical crises have occurred in the global economic market every 7 or 10 years, with the last one taking place over a decade ago, in 2008-2009.
The time interval itself is not the cause of crises. This is about such indicator as market overcapitalization, which remains the cause of economic recessions and which is taking place today, sadly.
Igor Nikolayev reminded of another indicator, the GDP capital intensity, which is the ratio of total capitalization of national companies’ shares to the nominal GDP volume. The indicator’s meaning is commensuration of national share market and the economy (in this case, globally). There is a hypothesis claiming that an indicator reaching certain threshold values correlates to a risk of evolving signs of a crisis in the economy, and in fact shows whether the so-called bubbles are existent or non-existent in the market.
“Prior to the 2008-2009 crisis, this indicator exceeded 110%. Since then, it has basically grown and reached the threshold value of about 110% by 2017 – and this means that bubbles are already there, and a recession is only a matter of time,” Igor Nikolaev noted.
“I am confident that the cyclicity of the global development still exists. You can believe it or not, but this is the way it happens,” the expert said.
Partly, the timing for next recession is delayed due to the policy pursued by global regulators. In 2019, the United States’ Federal Reserve System took anti-crisis measures by reducing base interest rate threefold.
“This was a purely anti-crisis measure,” Igor Nikolaev says.
According to the expert, the current coronavirus epidemic may as well serve as a trigger for a global economic crisis as it can considerably slow down the growth of China’s economy, whose share in the global GDP is estimated at 20% and which is currently in its slowdown phase.
“As early as this year, both China’s and the world’s economy will face a considerable deceleration in growth, which will inevitably affect Russia’s economy as well. The global economic slowdown will have its effect on the Russian economy; two-thirds of the increase in the global demand for oil products has always come from China,” Igor Nikolaev emphasized.
The crisis of 2008-2009 resulted from the collapse of United States’ major investment bank, Lehman Brothers, while the 2000-2001 crisis was caused by a sharp drop in high-tech companies’ indexes, the expert noted.