The world economy entered 2022 with massive tailwinds. The reopening of many countries as they learned to live with COVID-19 unleashed a wave of spending and economic growth in 2021 with the World Bank announcing a 5.7-percent year-on-year growth.
That boost, however, has now faded with hampered recovery generating new pressures. The World Bank even lowered its forecast for 2022; it now sees the world economy expanding by 2.9 percent throughout the year, down from that 4.1-percent January forecast.
“For many countries, a recession will be hard to avoid,” David Malpass, President of the World Bank, warned in the Global Economic Prospects report in early June.
The Russia-Ukraine conflict exacerbated inflation for key goods like gasoline and food. Snags in supply chains continue to disrupt global trade. The pain of stagflation has been acute, wide-ranging and potentially chronic. In the United States, gas prices soared to record highs in mid-June. The Federal Reserve (Fed) raised its benchmark interest rate by 75 basis points on June 15, the sharpest rate hike since 1994. The cost-of-living crisis continues to rage across Europe, according to major European media outlets.
These gloomy illustrations may cloud the global economic outlook for 2022, and strain the international community’s endeavors to implement the UN’s 2030 Agenda for Sustainable Development. Can we, countries in the same boat, find a way out of this chaos?
Risks
In March, the International Monetary Fund (IMF) pointed out that steeper price increases for food and fuel may spur a greater risk of unrest in some regions, from Sub-Saharan Africa and Latin America to Central Asia.
Helga Zepp-LaRouche, founder of the Schiller Institute international political and economic think tank in Washington, D.C., the U.S., during an online conference on June 18 showed the image of a high-speed train approaching a cliff at top speed with the driver doing nothing to stop it. She urged countries to immediately start handling the challenges the world now faces.
Zepp-LaRouche called on people to “pull the emergency brake.” She said the massive U.S.-led sanctions against Russia over the Ukraine crisis are proving to be self-destructive and threaten 1.7 billion people with starvation.
Cliff Kiracofe, a former senior staff member of the U.S. Senate Committee on Foreign Affairs and President of the Washington Institute for Peace and Development, while attending the Schiller Institute conference, condemned the U.S. guiding the West back to a Cold War “crusade” against the reality of a world shifting to multipolarity. The West is creating “helicopter money” and negative interest rate credit to bail out banks and fund the military while the real economy collapses, he said.
As far as COVID-19 resurgences go, Zhang Wencai, Vice President of the Agricultural Development Bank of China, explained in a recent article that commodity security is a global concern that requires cooperative efforts. If left unchecked, it, together with risks such as insufficient food supplies and labor shortages, threatens to aggravate the rich-poor divide—inequalities already deepened in the pandemic’s rippling aftermath.
During April’s IMF and World Bank 2022 Spring Meetings, officials and economists also expressed their concerns regarding the potential spillover risks of the Fed’s more aggressive monetary tightening.
This could trigger capital outflows from emerging markets, push up imported inflation, increase debt vulnerability and reduce policy space, Malhar Nabar, a division chief with the IMF’s Research Department, told Xinhua.
“There is a concern emerging market economies that have borrowed heavily in [U.S.] dollars, and especially on short maturity, could find themselves in a difficult position,” Nabar said. “And that would in turn lead to a slowdown in their economies. Or if they’re not able to meet their debt service obligations, then, of course, that would create wider debt problems.”
If emerging economies and developing countries cannot adequately respond to the tightening policy, this may lead to the re-pricing of global financial assets and further increase risks in the global financial system, Zhang said.
He further noted the risk to global supply chain security. In 2021, the world suffered the pain of supply chain disruptions, mainly resulting from the pandemic-induced insufficient energy supplies, poor shipping services and soaring freight expenditure. Trade protectionism and economic decoupling adopted by certain economies have also exacerbated global supply-demand imbalances, he added.
As the impact of COVID-19 subsides, the global supply chain is expected to gradually recover, but bottlenecks may not be eased and long-term problems may continue, Zhang said.
Promising aspects
As officials in the Trans-Atlantic are backing measures killing their own economies and furthering famine and disease around the globe, pro-development international activities are continued by the China-proposed Belt and Road Initiative, and collaborative allied nations and groupings, including the Eurasian Economic Union, read an article published online by the Schiller Institute on June 20.
For example, the 25th St. Petersburg International Economic Forum from June 15 to 18 attracted 14,000 attendees, with 130 nations represented and multiple economic agreements signed—adding up to $100 billion.
The rapid development of bilateral, regional and subregional free trade arrangements and the vision of regional integration has not only boosted confidence in strengthening multilateral cooperation, but also promoted trade and investment liberalization and facilitation, and contributed to post-COVID-19 recovery, Zhang said.
The Regional Comprehensive Economic Partnership (a 15-member free trade agreement that forms the world’s largest trading bloc in the Asia-Pacific region), which took effect in January, is set to play an important role in building the region’s resilience through inclusive and sustainable post-pandemic economic recovery, said Auramon Supthaweethum, Director General of the Department of Trade Negotiations under the Ministry of Commerce of Thailand.
Another example is the collaboration between BRICS member states—namely, Brazil, Russia, India, China and South Africa—which represents “a stabilizing factor in regional development and the global supply chain,” said Wang Dan, chief economist of Hang Seng Bank (China).
In 2021, BRICS countries accounted for 26 percent of the global economy and had a combined population of 3.2 billion people—over 40 percent of the world’s population.
“Russia and Brazil are major exporters of food and energy, which are critical in curbing global inflation. China and India are vital links in the supply chain, and South Africa is the most complex and affluent country in Sub-Saharan Africa,” Wang told CGTN.
Sudheendra Kulkarni, former Chairman of the Mumbai-based think tank Observer Research Foundation, said in an interview with Xinhua that “BRICS countries must adopt an action-oriented plan to stabilize the global economic situation, accelerate the recovery of the global economy, and forcefully bring back the agenda of equitable development to the center stage of global politics.”
When the crisis is global, the response to it also has to come in the form of global cooperation, he stressed. BRICS countries and other emerging economies taking united action can certainly help revive the global economy after the COVID-19-related slowdown it has suffered, Kulkarni said.
According to Zhang’s observations, digitalization will play a significant role in economic recovery. During the pandemic, the world benefited from technologies such as telemedicine, online education and telecommuting, he said, adding that the digital economy has proved itself to be a real growth driver and is bound to shape a new economic model.
Climate change has posed severe challenges to the globe, but climate action, on the other hand, presents an enormous opportunity for our economies, Zhang said. According to the assessment of the International Labor Organization and the Partnership for Action on Green Economy in April, a green recovery scenario with investments in renewable energies, developing efficiency and green transport would create some 20.5 million additional jobs by 2030 worldwide.
As the world’s major carbon emitters, China and the U.S. must work together on the development of breakthrough technologies needed to avoid climate disaster. Further joint efforts must target the elimination of tariffs on environmental goods and services as to provide incentives to channel private sector funds toward the development of dynamic green capabilities and their effective deployment, former U.S. Treasury Secretary Henry Paulson said at a webinar hosted by the Beijing-based Center for China and Globalization think tank on June 20.
“The world’s large countries need to do more to incentivize the [green] industry via public-private partnerships bringing together government, business and non-government organizations to meet environmental targets,” Paulson added.
The way forward
“People have good reason to be concerned that the world economy might slip into a crisis,” Chinese President Xi Jinping said while delivering a keynote speech in virtual format at the opening ceremony of the BRICS Business Forum on June 22. “At this critical juncture, tiding over difficulties together and pursuing cooperation is the only way for us to forestall an economic crisis.”
He called for stronger macroeconomic policy coordination to prevent the global recovery from slowing down, or even being disrupted, adding that major developed countries should adopt “responsible” economic policies.
“My message is simple: To manage today’s world crisis, we must encourage constructive diplomacy and international cooperation,” Kiracofe said.
Solidarity is what the world needs right now. Humanity should act in coordinated, proactive manner, rather than compete or offer disorganized responses to avert crises, transcend disruptions and restore global growth, a Xinhua commentary read. It added the world must be particularly wary of getting on board with any strategy based on invigorating the global economy while isolating certain countries.
Only those initiatives and agreements implemented in earnest can revive ailing economies and patch up a fragmented world for common prosperity, Xi said at the plenary session of the St. Petersburg Forum on June 17 in virtual format upon invitation. “That is why we need to strengthen development partnerships and forge greater synergy through concrete actions, particularly a ‘soft connectivity’ of development policies as well as international rules and standards,” he concluded.
