Leaf.ae: Is the world on the verge of another Global Recession?

Is The World On The Verge Of Another Global Recession?

August 15, 2016

After 6 years of the so-called global economic “recovery” we are back in the emergency room. The biggest economies in the world are facing the stubborn threat of another recession, and while many of the smaller developing economies are doing fairly and relatively well, this does not mean that they are immune to yet again another recession in a span of 8 years. The outcome is already taking shape and it is a déjà vu. More job cuts, higher unemployment, less hiring and many corporate bankruptcies. But this time, we at leaf.ae believe that it will be worse as the cure used for the last recession, was only for symptoms, not the original causes.

Let’s take a quick look at what has been happening in several parts of the world in 2016:


After two decades of easy credit and high-risk lending practices, and a rough 2008-2012 recession, the Eurozone is continuously struggling to restart economic growth. Greece, despite receiving its third European bailout (which had harsh conditions) and ongoing government austerity spending, the country is unable to manage any growth or deficit reduction. Italy, exhausted from the EU-inspired pressure regarding austerity and with an economy that barely achieved zero per cent growth in the second quarter of this year (according to the Italian Statistics Office), is preparing to negotiate a new deal with the EU. The country has a youth unemployment of 36.5% and is facing a bank crisis worth €360 billion of bad loans. Bank of England has begun new monetary easing and cut interest rates after the Brexit vote and UK is facing a dramatic downturn. We still do not fully understand the potential impacts of Brexit on the global economy, but they are surely and slowly unfolding. Will this lead to the gradual collapse of the Euro and the European Union as we know it?


Public Debt in the United States of America hit $19 trillion dollars. Estimated annual deficit is -$616 billion and growing. US based corporate layoffs are accelerating and are at the highest level since 2009, especially in the energy sector. The Federal Reserve has been promising rate hikes after 8 years of artificially low interest rates to support the “economic recovery”, but has so far been unable to hike more than 0.25%. Recent data about retail sales shows a cut back on spending by Americans, in a country that is dependent on a consumer-based economy. Macy’s said it would shut down 100 additional stores after a year of falling sales. Walmart, the world’s largest retailer, recently said that it was closing over 250 stores globally including 150 in the US. Since the beginning of 2016, there has been almost 100,000 job cuts in the energy sector alone. Citibank laid off 2000 employees and Microsoft announced more than 2800 job cuts last May. Is the US reaching a tipping point?

Latin America

The IMF’s 2016 forecast for Latin America shows a contraction in GDP growth, mainly because of economic problems in Brazil, Venezuela and Argentina. The forecast predicts a 700% inflation and a 10% GDP contraction in the oil-rich Venezuela, once the richest country in Latin America. The food lines and empty grocery stores across the nation demonstrate the free fall as hungry citizens struggle to buy basic requirements including food and toilet paper. 100,000s of Venezuelans crossed the border to Colombia to do much need grocery shopping. Brazil, which currently holds the Olympic Games in Rio, is facing a double political and economic crisis. Brazilian President Dilma Rousseff was suspended from her post and is expected to be impeached by the end of August. Petrobras, the state-owned giant, is struggling to pay huge debts with shares falling 25% since the end of 2014. Inflation has risen by 9% in 2015 and the economy contracted by 0.3% in the first quarter of this year.


The Chinese economy, the world’s 2nd largest economy, is evidently slowing down. Debt-burdened Banks and businesses are struggling to make profits and repay their loans. Recent data shows a fall in industrial output and retail. The government’s attempt to shift the economy towards domestic consumption instead of exports continue to produce challenges for the manufacturing sector with massive layoffs in the coal and steel industries expected in the near future. Is China’s economy losing steam? And what does that mean for the global economy, which depends on China’s hunger for natural resources?


Oil-rich countries in the GCC bloc have been relatively protected so far from a global economic slowdown, Brexit, fall in oil prices and the wars in Yemen, Iraq & Syria. Saudi Arabia and the UAE, the biggest two economies in the bloc, were able to demonstrate their abilities in overcoming fiscal challenges and a massive reduction in oil-generated revenues, thanks to their quick government actions and rich reserves in their Sovereign Wealth Funds. But with oil prices holding at around $ 44 per barrel and resisting higher prices, it is unclear how long they can manage to maintain growth. There are signs of shrinking jobs that have mainly hit expats in several sectors.

Oman, with a government dependency on oil and gas for the majority of its income, is in serious pain. Oil is running out and is expected to run dry in two decades and the government is struggling with a fiscal crisis and an expected budget deficit for 2016 and 2017. The government is borrowing domestically causing liquidity tightening and declining deposits in the banking sector. Job creation is on the decline with many expats losing jobs to Omanization, including 300 Indian nurses this month. Omani citizens are currently struggling to cope with less hiring as well as higher petrol prices at the gas stations, after the government cut fuel subsidies early this year, probably for good.


Will the world overcome the current economic challenges? Or are we witnessing the slow deterioration of the international economic system? Let’s keep an eye out and hope for the best.


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Leaf.ae – Team