The spring meetings of the World Bank and the International Monetary Fund usually provide a forum for various organizations, policymakers, and commentators to reflect on the state of the global economy, offer assessments of the past year’s developments, and forecast what will happen next. . This year’s meetings, which took place in Washington in April, were marred by dire predictions that underscored the growing prospect of a protracted global recession.
While many analysts had previously assumed that the crises the world has faced over the past three years – the Covid pandemic, supply-chain disruptions, the war in Ukraine and the resulting inflationary crisis and financial turmoil – would be a significant but ultimately transitory impact on the global economy New data suggest that the current economic turmoil will last longer than initially expected.
of the IMF world economic outlook And Global Financial Stability Report Suggesting a tough road ahead, warning that “the economic outlook around the world has thickened.” Large interest rate hikes by the US Federal Reserve and other major central banks have led to rapid increases in public and private sector debt. The highest level in decades, raising the risk of financial instability. The world’s advanced economies, which grew 2.7% in 2022, are projected to grow only 1.3% this year. While the IMF expects the emerging and developing economies of Asia to grow by 5.3%. India’s growth forecast has been revised to 5.9% in 2023 (compared to 4.4% last year), (compared to 6.8% growth in 2022).
A new World Bank book is even more pessimistic, warning that the global economy may be on the verge of a “lost decade”. will fall to a three-decade low of 2.2% and remain weak for the rest of the decade. While the rich may have the means to weather the storm, the same cannot be said for the world’s poor and lower-middle class, who will be hit hardest by the coming recession.
To understand the full impact of the present moment, we must look beyond the immediate consequences of Covid and the war in Ukraine and face underlying issues that have been going on for decades, including those caused by climate change and rapid technological innovation. Social and political disruptions are included.
Getting out of today’s ‘multicrisis’ and restoring global growth, although possible, will be extremely challenging for two key reasons.
First, as highlighted in the World Bank report, many countries are facing an alarming trend of declining investment. While fiscal and monetary policies certainly play a role, I believe the root cause of weak investment is the increasing politicization of economic policy, which has fostered a widespread loss of confidence in governments and their ability to solve problems. has undermined trust.
India is an example of this. Since 2012, there has been a steady decline in private sector investment as a share of Indian GDP. The World Bank and other experts attribute this trend to political polarization and a growing lack of trust. While public investment has increased dramatically over the past decade, this can be a dangerous trend: when government has disproportionate control over investment, it often leads to increased cronyism. Russia, where an oligarchy quickly emerged by currying favor with political leaders in exchange for lucrative contracts and sweetheart privatization deals, offers a clear example.
The second challenge is that launching any corrective policy will require a concerted, multi-country effort. The interconnectedness of global supply chains means that any disruption has widespread and powerful effects, and the growing use of economic sabotage as a tactic of warfare underscores the urgency of multilateral cooperation on treaties promoting the protection of economic assets. Is.
Achieving a prosperous, peaceful world also requires stepping up efforts to meet climate goals and prevent increases in economic inequality within and between countries. Due to advances in digital technology and the globalization of supply chains, such challenges are beyond the reach of individual countries acting in isolation. To address these global issues, governments must coordinate their monetary, fiscal and security policies. Trust me, it won’t be easy. But the alternative, a future of sluggish growth, political instability and environmental devastation, is too terrifying to contemplate.
©2023/Project Syndicate
Kaushik Basu is Professor of Economics at Cornell University and former Chief Economic Advisor to the Government of India.
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