The global economy experienced a turbulent year in 2022.
As the worst impacts of COVID-19 on public health ease, the war in Ukraine and China’s tough “COVID-free” containment measures have brought new chaos to the supply chain. global response. Food and energy prices soared as inflation in many economies hit a four-decade high.
After a tumultuous year, the global economy enters 2023 in turbulent waters.
Russian President Vladimir Putin’s war in Ukraine continues to roil energy and food markets, while rising interest rates threaten to stifle the still fragile post-pandemic recovery.
On the ledger’s positive side, China’s reopening after three years of strict pandemic containment measures lends credence to a global recovery – albeit constrained by fears that the virus’s recovery could be reversed. The rampant spread of the virus among this country’s 1.4 billion people could give rise to more dangerous variants.
Inflation and interest rates
Inflation is expected to decline globally in 2023 but remains high nonetheless.
The International Monetary Fund (IMF) has predicted that global inflation will hit 6.5% next year, down from 8.8% in 2022. Developing economies are expected to see little gain. more relief, with inflation expected to drop to only 8.1% in 2023.
“It is likely that inflation will remain above the 2% level that most Western central banks have set as their benchmark,” Alexander Tziamalis, a senior lecturer in economics at Sheffield Hallam University, told Al Jazeera. .
“Energy and raw materials will remain expensive for a while. A partial reversal of globalization means more expensive imports, labor shortages in many Western countries leading to more expensive manufacturing, and green transition measures to counter the major threat. Most of the challenges facing us as a species have resulted in higher inflation than we have experienced throughout the 2010s.”
Slowing growth and recession
Although the rate of price growth is expected to slow down in 2023, the economic growth rate will certainly slow down along with rising interest rates.
The IMF has estimated that the global economy will grow only 2.7% in 2023down from 3.2% in 2022. The OECD has predicted a worse performance this year of 2.2% growth, compared with 3.1% in 2022.
Many economists are more pessimistic and believe a global recession could happen in 2023, just three years after the recession caused by the pandemic.
In a column last month, Zanny Minton Beddoes, editor-in-chief of The Economist, painted a bleak picture summed up by the article’s clear title: “Why a global recession is not avoidable by 2023”.
Even if the global economy doesn’t technically slip into a recession – broadly defined as two consecutive quarters of negative growth – the IMF’s chief economist recently warned that 2023 could still look like like a year for many due to a combination of slowing growth, high prices and an uptrend. interest rate.
“The three largest economies, the US, China and the euro zone will continue to slow down,” Pierre-Olivier Gourinchas said in October. “In short, the worst is yet to come and for many people. , 2023 will look like a recession.”
China reopens
After nearly three years of punitive blockades, mass testing and border closures, China earlier this month began the process of lifting its controversial “no COVID” policy after… rare mass demonstration.
With draconian domestic restrictions a thing of the past, China’s international borders will reopen from January 8.
The reopening of the world’s second-largest economy – which slowed significantly last year – will give new impetus to the global recovery.
A recovery in Chinese consumer demand should give impetus to major exporters such as Indonesia, Malaysia, Thailand and Singapore, while the lifting of restrictions brings relief to global brands. from Apple to Tesla, which was constantly interrupted in the “no COVID” condition.
At the same time, China’s rapid turn away from “no COVID” carries significant risks.
While Beijing has stopped releasing COVID statistics, hospitals across China have been overwhelmed with sick people, while morgues and crematoriums have reported being overwhelmed with the flow of bodies.
Some health experts have estimated that China could see up to 2 million deaths in the coming months.
With the virus spreading rapidly among China’s huge population, some health experts have also expressed concern about the emergence of new and more deadly variants.
Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, told Al Jazeera: “Without this very disruptive opening, I think the market would do well.
Garcia-Herrero added.
“The other thing to watch for is if there’s a big mutation happening, and the mutations can be less lethal but also more lethal, and I think if that happens, and we start to see border closures, that will hurt investor confidence.”
bankrupt
Despite the economic devastation caused by COVID-19 and blockades, actual bankruptcies have decreased in many countries in 2020 and 2021 due to a combination of out-of-court arrangements with creditors. and massive government stimulus package.
In the United States, for example, 16,140 businesses filed for bankruptcy in 2021, and 22,391 businesses did so in 2020, compared with 22,910 in 2019.
That trend is expected to reverse in 2023 amid rising energy prices and interest rates.
Allianz Trade has estimated that the global bankruptcy rate will increase by more than 10% in 2022 and 19% in 2023, eclipsing pre-pandemic levels.
“The COVID pandemic has forced many businesses to take out large loans, exacerbating their growing reliance on cheap loans to make up for the loss of their competitive edge,” said Tziamalis. West due to globalization”.
“The survival of highly indebted businesses is now in question as they face a perfect storm of higher interest rates, higher energy prices, more expensive raw materials and consumer spending. less of consumers… It should also be pointed out that Western governments’ appetite for any direct assistance to the private sector has been constrained by their growing deficits and prioritization. support for households.”
Globalization is frayed
Efforts to reverse globalization have accelerated this year and look set to accelerate into 2023.
Since its beginnings under the Trump administration, the US-China trade and technology war has deepened under US President Joe Biden.
In August, Biden signed the Science and CHIPS Act blocking the export of chips and advanced manufacturing equipment to China – a move intended to stifle the growth of China’s semiconductor industry and promote self-sufficiency in chip manufacturing.
The passage of this law is just the latest example of the growing trend from trade and economic liberalization towards protectionism and greater self-sufficiency, especially in the developing world. important sectors related to national security.
In a speech earlier this month, Morris Chang, founder of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chipmaker, lamented globalization and free trade ” almost died.”
“The West, especially the US, is increasingly threatened by China’s economic trajectory and responds with economic and military pressure on the emerging superpower,” Tziamalis said.
“A full-blown war over Taiwan is highly unlikely but imports are more expensive and growth is slower for all countries involved in this trade war that is almost certain.”
