Tuesday, February 27, 2024

The Global Economic Outlook and the Challenges


The world today seems to be moving towards an overhaul and the transitions and resets may occur in varying ways. Be it through the catastrophic impacts of climate change, the vulnerabilities of the pandemic, the after-effects of the Russo-Ukrainian conflict, or the geopolitical tussle of global hegemony between the US and China.

All these developments and challenges act only as multipliers in further deteriorating the already troubled world. So it is imperative to imagine the world post these challenges.

While there are significant developments in geopolitics and power dynamics and a new world order could possibly emerge in the coming decades. It is the global economy that would certainly face setbacks and could face a recession as a consequence of various factors, stated above. A decline in global economic growth has already been observed, with inflation rising to new heights.

The Organization for Economic Cooperation and Development (OECD) recently projected the global growth for the year 2022 to be 3%, a significant decrease from what it predicted in December last year i.e. 4.5%. Moreover, its projection for inflation is nearly 9% for its 38 members, while other developing states could face more heightened inflation. In 2023, it expects even lesser growth i.e. 2.8%.

The unemployment rate is also seen mounting and a significant amount of the available labor force is unable to find any work with more complicated projections for years to come. The World Bank and IMF, too, predict a gloomy and more uncertain economic outlook.

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These indicators like inflation, unemployment, and growth rates are showing signs of a worsened economic situation. But the question remains what has led us to this and what further awaits us as the consequences of the current challenges? The pandemic, of course, has had very devastating impacts on the Global Economy. A little or practically no trade between the states due to the strict Covid protocols resultantly contracted the whole world economy.

The slowed production rate due to the unavailability of labor and the closure of production houses coupled with the expenditures on fighting the pandemic proved to be a grave burden, especially on the developing world. Though China’s zero covid policy and steps of a similar kind taken by other states proved successful in containing the disease, that hurt the connected economies and practically halted the trade between the countries.

The year 2020 observed the loss of over two Trillion US dollars in the economic output and the global GDP fell by about 3.95%, while the unemployment rate amounted to 6.57%. However, 2021 showed the signs and hopes of a recovery and a stable economic outlook post-pandemic.

But, as the severity of the pandemic reduced a bit and the prospects of an economic recovery seemed possible, the world got struck by another calamity in the form of an escalated conflict between Russia and Ukraine. The world somehow would have been back on track from the setbacks of the pandemic, but this war could prove to be the deadliest for the Global economy.

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The conflict has greatly disrupted the supply chains triggering serious concerns over the food and energy supplies as well as the increasing prices of commodities and other essentials. The developing nations would suffer as they always do, but the significant setback could be for the western economies, Europe particularly. Europe relies heavily on Russia for its energy requirements.

Any joint effort against the aggression of Russia would cause the European states in billions of dollars. Moreover, the shortage of semiconductor chips has also hampered the growth in production, and the automotive and electronics industries across the Europe and world have suffered a lot. The closure of trading ports on the Black sea by the Russian authorities further adds to the plight of European economies.

They would not only observe a significant fallout in their GDPs but an overall economic recession awaits the European economies. And the impacts of war on regions other than Europe are no different as well. The developing nations have already observed a great rise in inflation, and more problems pertaining to geopolitics are in line for the smaller states.

Moreover, Ukraine and Russia jointly are the biggest producers of wheat, corn, and sunflowers and with other devastation of war, the food supplies are also going to be disrupted. So, if the war continues and is prolonged, it could result in famine as well.

Alongside this conflict, the trade war between the US and China coupled with the savages of Climate change also very concerning. The sanctions and other restrictions imposed by both sides not only hurt their bilateral trade, but this undeclared cold war has multilateral implications.

While this US-China tussle could drag smaller states into the bloc politics once again. The adverse impacts of climate change are also going to hit developing states like Pakistan more than those who are actually responsible for it.

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The conflicts between the nations are often bilateral, the pandemics are natural and the struggle for power is structural, and all these could be handled and are in a human capacity. But climate change is the real deal, which once deteriorated beyond repair would be impossible to undo.

Humans, particularly, those in the developed world are mainly responsible for the disruptions in the environment. So the whole world must come together on this gravest of issues for a sustainable future for all of us and our generations. Moreover, it needs to be a collective effort to help those who have been severely hit by the implications of environmental changes.

Despite all the challenges that are visible today, there is no need to be very pessimistic about the future, as some of the economies showed signs of great growth despite all the odds.

Take India as an example, which recently overtook the UK and become the world’s largest economy. So, it tells that countries that would take calculated measures in the oddly changing geo-political environment would not only avoid the worsened economic situation but could also grow at a satisfactory rate.


Author: Muhammad Muqeen Abbasi is a student of International Relations at the National Defence University, Islamabad.

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