Rebuilding The Global Economy

By M. Isi Eromosele

The global economy has been through difficult times during the past eighteen months. The economies of the major developed countries have all been in recession. The market confidence in the global economy plummeted to its lowest level since the Great Depression, accelerated by a sharp drop in global trade, output in manufacturing, creation of financial wealth and tremendous loss of jobs. As such, the fundamental basis of the international financial system has been brought under intense scrutiny.

During this most recent recession, the economic activities in the world economies declined sharply. This decline exposed the close linkages that exist within the world economy. What started as a mild recession within the United States economy quickly spread to the other world economies, developing into a global recession. This had a major impact on world trade. The prices of major commodities were profoundly affected by the steep drop in industrial demand.

Despite the above assessment, the underlying foundation of the world economy is still strong. Furthermore, leaders of the developed market economies market economies have collectively implemented a multi-faceted reply to the now slowly recovering recession. To sustain demand, monetary policies were eased. Unparalleled actions have been taken by the major global economies to back the international financial sector, helping to maintain the continued flow of capital financing and credit.

Longer-term financial restructuring plans are being formulated to produce a more secure, durable and effective global financial system. It is expected that when these plans are fully implemented, they will restore a better sustained growth in the global economy.

This global downturn should not be taken as just another of those recurring financial shocks. It represents a momentous opportunity to make some important changes to the interrelationship between the global financial systems and the world economy. The following policy corrections would need to be implemented:

• The untenable large account imbalances that had been maintained in the main developed market economies need to be rectified. The required rebalancing in deficit countries, such as the United States, Britain and Japan toward countries with surpluses, such as China will not happen overnight. It would need a concerted effort to execute this over some time. Because of the huge amount of money involved, it would reduce the speed of recovery in the global economy.
• The design and implementation of the global financial system needs to be completely reevaluated. With the system that had been in place for the past two decades, the ability of financial institutions to facilitate the provision of business and personal credit was greatly expanded. As a result, the level of debt relative to GDP in many developed countries rose sharply. The credit sector of global financial services needs to be more closely supervised under new and enhanced regulations.
• The future potential growth of the global economy will be lower than previously expected. This is the aftermath result of past misguided investments in poorly researched real estate and the production of cars that did not meet the specific demands of customers. The global economy needs to be readjusted to encourage sustainable growth in the future.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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