The global economy is showing signs of weakening as major powers temper their growth prospects for the near future. Every healthy economy experiences times of expansion and recession as the powers of supply and demand play out in the marketplace.
In the United States, a recession has occurred with a regular cadence since the Great Depression. About every 6 years to 10 years the American economy experiences a withdrawal that typically lasts last just over 300 days; the shortest being 6 months in the early 1980s. According to this pattern, Americans can reasonably expect a recession could begin sometime between now and mid-2019.
This time, it may be different
The largest economies in the world are charting new territory, and not in a good way. Japan, Europe, the United States and China are all accumulating record amounts of debt without clear strategies to address the problem. The International Monetary Fund has even warned that the global debt is unsustainable.
According to the summary of the October 2016 Global Financial Stability Report, the IMF points out that the low profitability that financial institutions in developed markets are experiences cannot be overcome simply by normal market cycles.
The report highlights that “financial institutions in advanced economies face a number of cyclical and structural challenges and need to adapt to low growth and low interest rates, as well as to an evolving market and regulatory environment.” This means that the tactics that worked in the past will likely not offer the same result as previous downturns.
The need for reform
The IMF specifically called out a need for “deep-rooted reforms and systematic management” for European banks. The report goes on to mention that “the solvency of many life insurance companies and pension funds is threatened by a prolonged period of low interest rates”. These are striking comments about businesses that tend to be hugely profitable in normal economic situations. Instead, their resiliency in the current environment is called into question.
To make matters more attention-grabbing, the IMF also lowered its forecast for growth in the United States for 2016. This is the largest decline for a developed country and is a reflection of low business investment and performance.
The current economic outlooks begs the question as to the future of scientific research. What will the consequence be for science funding and the prospect of science-based business in the time of low interest rates and potentially an impending global recession?
The problem is that this time, the central banks will not have the ability to lower interest rates to spur the economy. Central banks use lowering interest rates as an essential mechanism to encourage consumer spending and jumpstart a struggling economy. With interest rates already at record lows, a proliferation of the negative interest rates that have started to emerge in Japan, Germany, Switzerland, Sweden, Denmark and other areas is a likely result.
Is the future of STEM funding at stake?
One can only imagine the affect this will have on the daily lives of citizens and businesses during these uncertain times. Considering the national debts are climbing and economic growth and productivity are declining, where does this leave science funding – which is often considered a luxury expense that can be cut at will. The struggling Swiss economy has already impacted their access to science funding. The United States may not be able to continue its commitment to science and research in the wake of its mounting national debt.
The state of the global economy is just starting to show weakening so STEM professionals can likely expect a reduction in interest from the marketplace on their offerings. In order to gain traction on ideas it is important to place the sustainability and technical advances encouraged in perspective. Many of the sustainable advances are not cost neutral or at a cost advantage. The expenses alone could slow progress expected to come from large initiatives to mitigate the effects of climate change, for example.
To take this idea further, the Paris Agreement has been officially ratified, but if the largest polluters and largest economies are also nearing insolvency it may not be realistic to expect them to actually make good on their promises.
At this point there are more questions than answers. The economic effects on STEM funding and new STEM-business formation will become increasingly clear in the coming months. For now, researchers are tasked with managing the conversation around science so that it is viewed as a means for economic development instead of a drain on resources.
Image source: http://www.cfr.org/publication/image-resizer.php?id=25303&preset=bkg_tcp_1160 where
Richelle Thomas, PhD
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