Friday, January 27, 2023

Impact on global economy

As the year 2022 ends and the new year 2023 begins, there is considerable anxiety over the global economy which is on a path to recession. The Russian invasion of Ukraine and also resurgence of the new Covid 19 strain(Omicron) in China have only doubled the problem for the economy. According to the Organisation for Economic Cooperation and Development (OECD) global growth will slow to a 2.2 percent pace in 2023 from 3.1 percent this year, before rebounding modestly in 2024. The report said the world’s leading economies are sliding into recession(a sustained period of weak or negative growth in real GDP-output- that is accompanied by a significant rise in the unemployment rate) as the global energy and inflation crises sparked by Russia’s invasion of Ukraine cut growth by more than previously forecast. This means that higher inflation and slower growth are the heavy price that the global economy is paying for Russia’s war in Ukraine. Another grim assessment was echoed by the International Monetary Fund that the world economy was headed for “stormy waters.” The fund downgraded its global growth projections for next year and warned of a harsh worldwide recession if policymakers mishandled the fight against inflation.“The worst is yet to come, and for many people 2023 will feel like a recession,” the I.M.F. report said. The world won’t tumble into an outright recession, the report said, but the whirlwind of problems – high energy and food costs, rising interest rates and growing government debt to pay for the fallout- created fragile prospects for the global economy over the next two years. Global growth will slow to a 2.2 percent pace in 2023 from 3.1 percent this year, before rebounding modestly in 2024, the report said. The ongoing war in Ukraine has dimmed prospects of a post-pandemic economic recovery for emerging and developing economies in the Europe and Central Asia region, says the World Bank’s Economic Update for the region, The global economy continues to be weakened by the war through significant disruptions in trade and food and fuel price shocks, all of which are contributing to high inflation and subsequent tightening in global financing conditions. Activity in the euro area, the largest economic partner for emerging and developing economies (EMDEs) of Europe and Central Asia, has deteriorated markedly in the second half of 2022, due to distressed supply chains, increased financial strains and declines in consumer and business confidence. The most damaging effects of the invasion, however, are surging energy prices amid large reductions in Russian energy supply. As a result of its war, estimates of a 30-year economic setback are projected for Russia. The war in Ukraine has also resulted in significant loss of human capital, destruction of agricultural trading infrastructure, huge damages to productive capacity, and a reduction in private consumption of more than a third relative to pre-war levels. The recent COVID surge in China, the second largest economy in the world, covering approximately 18 percent of the global GDP-has once again forced the global economic alarm bells to start ringing louder. The resurgent covid variant has caused China’s economic slowdown to 4.0% from 4.3%. Globally, all countries will feel the impact of the economic slowdown including India but which could improve if Putin stops the war in Ukraine and China succeeds in controlling the virus spread.

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