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The prosperity of the 1920s remains an object of longing to this day, but history never repeats itself simply; the shadow of four gray rhinos moving slowly (http://yunrun.com.cn/community/2824.html) is looming over the global economy. The first gray rhinoceros: The uncertainty surrounding the adjustment process of Sino-U.S. economic relations and its impact on global aggregate supply and demand ； The second gray rhinoceros: The impact of the decline in European manufacturing, led by Germany, on global economic growth ； The third gray rhinoceros: The impact of the spread of populism on the global social order ； The fourth gray rhinoceros: The growing economic concerns and their impact on the optimism in global financial markets. http://yunrun.com.cn/upload/201912/05/201912051741123946.png The term “gray rhinoceros” first appeared in an book by economist Michel Wucker titled “The Gray Rhino: Crises Are Coming, So Why Can’t We See Them?” 》。 Prior to this, economics used the term “crisis” primarily to describe two situations: the first being cyclical crises, which refer to the periodic phases in which such crises occur ； The second is sudden crises, specifically those that arise when an enemy is at the city’s gates and must be addressed. The “gray rhinoceros” refers to crises that have already occurred but are ignored by people. The end marks the beginning of a new chapter; 2020 was a crucial year as a transition point between the 2010s and the 2020s. What will become of the global economy? The prosperity of the 1920s remains a source of longing to this day; but in the same period of this century, can such prosperity be recreated? History will never repeat itself in exactly the same way, especially since we can already see the shadow of four gray rhinos moving slowly looming over the global economy. The first gray rhinoceros: The uncertainty surrounding the adjustment of Sino-U.S. economic relations and its impact on global supply and demand. Since 2018, the factor that has posed the greatest challenges to the global economy, for the longest period of time and with the highest level of uncertainty, is undoubtedly the process of adjusting Sino-U.S. economic relations. To date, the two sides have held multiple rounds of consultations and negotiations (including two summit meetings and thirteen rounds of high-level economic and trade talks), with many twists and turns along the way. Recently, they have reached a greater degree of consensus; however, given ***’s repeated behavior in the economic and trade talks between the United States and South Korea, the United States and Japan, the United States and Mexico-Canada, as well as the United States and Europe, even if an interim agreement is reached, it will not be able to effectively prevent the U.S. from imposing unilateral measures against China. Furthermore, since the global financial crisis, the global economy has remained in a state of adjustment. To date, no new drivers of growth have emerged in the global economy, nor has its endogenous growth momentum been fully restored. Countries are all pursuing structural adjustments to varying degrees, and the adjustment of Sino-U.S. economic and trade relations is integral to this process of global economic restructuring, which will inevitably have both positive and negative impacts on the operation of the global economy. At present, the scale of U.S. imports from China accounts for about 3% of global imports as a whole. The economies of China and the United States together make up nearly 40% of the global economy. Moreover, bilateral trade between the two countries constitutes around 20% of each country’s total trade volume. Therefore, merely from a trade perspective, it is clear to see the extent and impact of any adjustments in the economic relations between China and the United States on the functioning of the global economy. http://yunrun.com.cn/upload/201912/05/201912051745180071.png Figure 1: The integration of the U.S. and Chinese economies. Before this crisis, consumer spending in the United States and investment in China were the main drivers of economic growth in each country; moreover, the U.S. and China played important roles as key factors on the supply and demand sides of the global economy. Objectively speaking, the significant easing in the global economy prior to the crisis (high growth, low inflation) was closely related to the expansion of the global supply chain between China and the United States. However, following this crisis, significant structural changes have taken place within both the United States and China. For example, Americans have changed their pattern of overconsumption; the U.S. household net savings rate has risen from 2.5% before the crisis to between 7% and 9%. Meanwhile, consumer demand in China has increased, and the leverage ratio of Chinese households has risen rapidly, going from 17% before the crisis to over 50%. Therefore, in the medium to long term, adjustments in economic relations between China and the United States will also be inevitable, in line with the needs arising from changes in their respective internal economic structures. http://yunrun.com.cn/upload/201912/05/201912051747422709.png Figure 2: U.S. household net savings rate and China’s household leverage ratio. Therefore, for the global economy in 2020, the first major risk factor is the uncertainty surrounding the adjustment process in Sino-U.S. economic relations. If this process experiences further interruptions and setbacks, with short-term tensions spreading to a wider range of areas, it will inevitably have severe and medium-term negative impacts on the global economy. The second gray rhinoceros: The impact of the decline in European manufacturing, led by Germany, on global economic growth. The current global financial crisis has not only interrupted the trend of sustained global economic growth but has also given rise to a reverse trend toward globalization. One of the landmark events of this reverse trend was the unexpected approval of the Brexit referendum; thereafter, Britain and the EU found themselves embroiled in extremely complex negotiation processes, casting a heavy shadow over the European economy, which had just recovered from a debt crisis. Since 2018, Germany’s manufacturing sector has shown a downward trend; this year, the PMI for Germany’s manufacturing industry has remained below the 50% threshold indicating growth or decline, and this trend of decline has accelerated. Germany’s economy experienced negative growth in the second quarter of this year, suggesting that it is approaching a recession. As a result, the PMI for Europe’s manufacturing sector has dropped below 42%, the lowest level it has been in a decade. http://yunrun.com.cn/upload/201912/05/201912051751132606.png Figure 3: Economic conditions in Germany and the eurozone. Currently, the global manufacturing sector is in the later stages of Industrialization 3.0. Although Germany, as a industrial power from this era, introduced the concept of Industry 4.0 in 2013, the declining benefits associated with Industrialization 3.0 continue to have a negative impact on Germany. For example, the share of high-tech products in Germany’s exports of manufactured goods has dropped to 16% over two consecutive years, with an average annual decline of one percentage point ； Another example is that Germany’s import and export growth rate toward China has been on a downward trend since 2018, and this year it has shown negative growth for several consecutive months. http://yunrun.com.cn/upload/201912/05/201912051753474234.png Figure 4: Germany’s high-tech exports, as well as Germany’s import and export figures with China. In 2018, the total global economy was approximately 85 trillion dollars, of which the EU accounted for around 19 trillion dollars, representing 22% of that total. Within the EU, the UK’s economy accounts for one-sixth of the total, while Germany’s economy accounts for one-fifth. Consequently, Brexit means that one-sixth of the economic entity of European integration will be separated from it. If Germany does fall into a recession, it will undoubtedly deal a double blow to the European economy. What’s more serious is that due to the global financial crisis in 2008 and the European debt crisis in 2012, the European Central Bank has maintained an unconventional accommodative policy stance; it has not returned its monetary policy to normal levels like countries such as the United States and China have done. As a result, the ECB’s policy options are now very limited. On top of that, the effectiveness of negative interest rate policies remains to be proven. In other words, the ECB almost has no policy tools left to address a recession. Consequently, European economic policy will rely more on the stimulus provided by Germany’s fiscal policy as well as coordination with the policies of other countries. However, since fiscal policy remains a weak point in European economic integration, it is extremely difficult to put fiscal stimulus measures into practice. Therefore, for the global economy in 2020, the second gray rhinoceros represents the extent and duration of the decline in European manufacturing, led by Germany; if this decline exceeds its capacity to withstand it, the negative impacts will inevitably spread across the world. The third gray rhinoceros: The impact of the spread of populism on the global social order. As the internal drivers of economic growth weaken and the benefits of globalization disappear, the issues related to unfair distribution of social welfare, which had been hidden behind sustained economic growth, have come to light. In particular, the lack of significant improvement in employment opportunities for young people has further fueled the spread and intensification of populism worldwide. Taking the employment situation in France, Italy, and Spain as examples, the unemployment rates among young people under 25 in these three countries are currently 19%, 29%, and 33% respectively. Although these rates have dropped from their peaks during the European debt crisis, they remain higher than the levels prior to the crisis. http://yunrun.com.cn/upload/201912/05/201912051756096467.png Figure 5: Unemployment rates among people under 25 in three European countries. At the same time, the significant increase in internet coverage has enabled many local negative emotions stemming from populism to spread rapidly across the whole area via the internet; moreover, during this spread of emotions, such emotions are amplified by numerous misleading pieces of information. For example, in social unrest such as the independence referendum in Catalonia, Spain, the French \"Yellow Vests\" movement, and protests triggered by rising subway fares in Chile, the spread of information via the Internet played a role in exacerbating the situation. In the recent protests by Iranian citizens over the increase in oil prices, **the first measure taken by Iran was to cut off the internet access within the country. But given that the Internet has become an essential part of people’s lives, a simple interruption of internet service will only arouse anxiety and dissatisfaction among the broader society. http://yunrun.com.cn/upload/201912/05/201912051758524522.png Figure 6: Proportion of Internet users in the total population. Therefore, populist social unrest, which is spreading at an increasing pace and with greater frequency, spreads even faster through the Internet; yet the effective measures available for governance in various countries are actually quite limited. Against the backdrop of the trend toward de-globalization, the market and investment environments in various countries are crucial to their economic conditions; the spread of populism will inevitably have a negative impact on these environments, further reducing the efficiency of global capital allocation. The fourth gray rhinoceros: The growing economic concerns and their impact on the optimism in global financial markets. The recovery from this crisis was largely thanks to the persistent optimism in financial markets. For example, since global stock markets bottomed out in February 2009, the MSCI World Index has risen by 190% so far, the MSCI Developed Markets Index has risen by 200%, and the MSCI Emerging Markets Index has risen by 154% ； Meanwhile, global interest rate levels have continued to fall (lower bond rates mean rising bond prices), with an average cumulative decline of over 200 BP. Negative interest rate trends have emerged, particularly in regions such as Europe and Japan, and the volume of globally issued negative-interest-rate bonds once approached 18 trillion dollars. As a result, following the recovery from this crisis, driven by optimism in an environment of low interest rates, global financial markets have remained on an upward trend. http://yunrun.com.cn/upload/201912/05/201912051801259689.png Figure 7: Trends in global stock indices and key 10-year government bond yields. This year, due to a combination of factors such as a decline in the manufacturing sector, ongoing trade disputes, worsening income inequality, and heightened geopolitical risks, the major contributors to global economic growth, including the United States and China, have all faced varying degrees of economic pressure. As a result, after March this year, monetary policies around the world were relaxed once again; to date, nearly 60% of central banks worldwide have adopted easing measures such as interest rate cuts. Following the 2008 financial crisis, nearly 80% of central banks around the world implemented loose monetary policies. But unlike in the past, countries have exhausted much of their policy space in responding to this global financial crisis, which severely limits their actual capacity to implement further easing measures, and thus weakens market confidence in central banks. Considering that unilateralism, populism, and the counter-trends of globalization will only intensify rather than weaken in the short term, there is considerable uncertainty as to whether the current downward trend in the global economy can be halted. http://yunrun.com.cn/upload/201912/05/201912051803012768.png Figure 8: Trends in central bank interest rate policies worldwide. Although financial markets still have confidence in central banks and remain optimistic, continuing to support the global economy, once that confidence is undermined by concerns over an economic downturn – especially if the stock market bull run that has lasted for over a decade comes to an end – it is very likely that a reversal in market expectations could become the final straw that brings down the global economy.