By Bohlale Loysio Bam
With a pandemic, the war in Ukraine, and a global economy in crisis, the world sets its sights on an uncertain future. The global COVID-19 pandemic shifted everything from how we work to the functioning of our economies.
Recently the IMF warned of a looming global recession as economic expansion is likely to slow down by up to 3.2% this year. According to the latest IMF report, the war in Ukraine and the ongoing COVID-19 pandemic, have fostered uncertainty in the global economy, disrupting key sectors of the economy, mainly the global supply chain. Rising prices and geopolitical fragmentation have impacted global trade and cooperation; inflation has also risen substantially as countries continue to recover from the impacts of the pandemic. China has felt the brunt of the pandemic’s force as disruptions to the global supply chain, increased outbreaks, and lockdowns threaten the country’s growth. Ukraine’s inability to export grain products across the world have affected the global food supply, adding further strain to an already frenzied supply chain, and China, the world’s largest exporter. All these compounding factors cast a dark shadow on global economic growth.
The War in Ukraine has sent shockwaves to the global economy, most notably in Europe. As the continent reels from a pandemic, contends with rising inflation and fractured relations with trade, investment, and financial links with the warring countries. The European Union finds itself with little actionable force against Russia, whose natural gas is a primary source of energy in many EU countries, mainly Germany. This dependence and Russia’s nuclear capabilities have made it difficult for the EU to enact harsher punishments for fear of their supply being shut off from their natural gas supply. Ukraine’s Economy has faced a brutal hit since Russia’s invasion. As one of the world’s major grain producers of wheat, corn barley and sunflower oil, the halting of exports from Ukraine due to the war has had reverberating effects across the globe. Russia’s blockade of Ukrainian ports has attracted the condemnation of global organisations and countries around the world. EU foreign policy chief Josep Borrell called on for an end to Russia’s blockade
"We call on Russia to deblockade the [Ukrainian] ports... It is inconceivable, one cannot imagine that millions of tonnes of wheat remain blocked in Ukraine while in the rest of the world people are suffering hunger," Borrel told reporters
The war and its subsequent blockade have also caused a global food security crisis, which combined with a shrinking economy and a lack of monetary aid, leaves communities across the world in an increasingly vulnerable state.
The pandemic forced many countries around the world to lower interest rates to encourage borrowing and issued stimulus packages to their citizens as many lost their jobs due to the pandemic, as well as to encourage spending. Although these measures slowed what was an impending economic catastrophe, economic growth has remained stagnant as the global supply chain regains stability
In the United States, GDP Growth has slowed in the last two quarters as the Federal Reserve raised interest rates in an effort to slow down the economy - and rising inflation. This move comes as Fed Chair, Jerome Powell staved off questions of an impending recession, which he and the White House refute, stating "I do not think the U.S. is currently in a recession," despite a 2.25 - 2.50% policy interest rate - the fixed interest rate set by a financial institution for a country or group of countries, determining how much it will cost to borrow money from a central bank - hike in July of this year. This is the highest monetary policy rate since the Great Depression. Despite the exorbitant interest hike, the unemployment rate continues to remain low with stable wage growth and employment opportunities. "Restoring price stability is just something we have got to do," Powell stated, as he continued to highlight the Fed’s Goal of maintaining a 2% inflation rate. Economists have dubbed this a ‘jobful downturn’ - according to the Wall Street Journal, despite the optimistic view, however, this interest rate hike is expected to severely impact working Americans and their standards of living.
A similar move was followed by the UK, as the Bank of England increased its interest rate to 1.25%, its highest level in 40 years. A similar 2% inflation rate target is expected the Bank of England; down from the previous 9% as the country prepares to enter a recession. The BoE raised borrowing costs to 1.75%, the highest since 1995, indicating a long and difficult road ahead for Britain’s economy. Ballooning energy costs, coupled with rising food prices and stagnating wages have put the UK in a precarious economic position as the Post-Brexit economy tries to find its footing. "We know that what we're doing is adding to an already very challenging environment… but our assessment is we needed to act forcefully to ensure that inflation doesn't become embedded." - BoE Deputy Governor Dave Ramsden said in an interview with Reuters on August 8th.
Amidst a stagnating economy, coupled with global supply chain issues spurred by the Pandemic has left China in a precarious economic position. China’s GDP growth is expected to grow at 3.3% this year, down from the original target of 5.5% growth for 2022 set by the CCP. China in contrast to measures taken by the US and UK have opted to cut interest rates by 0.1%. Despite a mere 0.4% GDP growth during the second quarter, the government have refrained from massive stimulus packages despite fears of a global recession along with with the prospect of re-introducing COVID-19 lockdowns at home. This is part of the Chinese government's plans to tackle economic stagnation and joblessness since the COVD-19 Pandemic. Shanghai-based economist Nie Wen said "Stagnation is what everyone is worried more about after the second quarter (GDP) fell into a hole," as such, it's the government’s goal to stave off economic stagnation by creating favourable business conditions for outside companies, a push to re-ignite the global supply chain, following the pandemic’s disruption.
As the war in Ukraine rages on, many states, especially in Europe have affirmed their support for Ukraine during the crisis, with Germany and France pledging to cut their use of Russian Gas in exchange for alternative sources of Energy. The United States, UK and EU have entered harsh sanctions against Russia, and have provided financial aid to Ukraine. The global condemnation of the crisis have united the world in support for the Ukraine and its people.
Throughout all of this uncertainty, there are everyday people who will be the most affected; millions are going to be caught in the crosshairs as economists and politicians enact economic measures and policies to limit the long-term effects of a contrasting economy. The increased cost of goods, rising utility prices, and diminishing consumer spending power leaves millions of families anxious and fearful of the future. Economists have noted that the next few months and years are going to have a severe impact on middle-income families as their spending power decreases, but they urge that the short-term hurt is necessary to avert long-term economic damages. The fundamental question to ask, as the world waits in anxious anticipation for the next moves in the global economy, what can our global economic institutions do to limit the spread of this impending recession, and what policy measures ought - and can these institutions respond adequately to create a safety net in the event of another calamitous economic crisis?