It was supposed to be the comeback year for the world economy following the COVID-19 pandemic. Instead, last year was marked by a new war, record inflation and climate-linked disasters.
It It was a “polycrisis” year, a term popularized by historian Adam Tooze.
Get ready for more gloom this year.
Photo: AFP
“The number of crises has increased since the start of the century,” University of Amsterdam macroeconomics professor Roel Beetsma said. “Since World War II we have never seen such a complicated situation.”
After the COVID-19-induced economic crisis of 2020, consumer prices began to rise in 2021 as countries emerged from lockdowns and other restrictions.
Central bankers insisted that high inflation would only be temporary as economies returned to normal, but Russia’s invasion of Ukraine in late February sent energy and food prices soaring.
Photo: AFP
Many countries are now grappling with cost-of-living crises because wages are not keeping up with inflation, forcing households to make difficult choices in their spending.
Central banks have played catch-up. They last year started to raise interest rates in an effort to tame galloping inflation — at the risk of tipping countries into deep recessions, as higher borrowing costs mean slower economic activity.
Inflation has finally started to slow down in the US and the eurozone.
Consumer prices in G20 states developed and emerging nations are expected to have reached 8 percent in the fourth quarter of last year before falling to 5.5 percent this year, the Organisation for Economic Co-operation and Development (OECD) said.
The OECD encourages governments to provide aid to bring relief to households.
In the 27-nation EU, 674 billion euros (US$723 billion) have so far been earmarked to shield consumers from high energy prices, the Brussels-based Bruegel think tank said.
Germany, Europe’s biggest economy and the most dependent on Russia energy supplies, accounts for 264 billion euros of that total. One in two Germans say they now only spend on essential items, a survey by Ernst & Young Global Ltd showed.
Rising interest rates have also hurt consumers and businesses.
The US Federal Reserve and European Central Bank last month began to slow the pace of their rate hikes, but signalled they still need to go higher to get a grip on inflation.
Economists expect Germany and another major eurozone economy, Italy, to fall into recession.
The British economy is already shrinking. Rating agency S&P Global foresees stagnation for the eurozone this year.
However, the IMF still expects the world economy to expand this year, with growth of 2.7 percent. The OECD is forecasting 2.2 percent growth.
China’s easing of COVID-19 curbs is raising hopes for the revival of the world’s second-biggest economy and major driver of global growth.
The curbs had torpedoed China’s economy and sparked nationwide protests.
China last week signaled that it was reopening to the world as it announced that it would end quarantines for overseas arrivals from Sunday next week.
For Beetsma, however, the biggest crisis is climate change, which he said is “happening in slow motion.”
Natural and human-made catastrophes have caused US$268 billion in economic losses last year, preliminary numbers by reinsurer Swiss Re AG showed.
Hurricane Ian alone cost an estimated insured loss of US$50 billion to US$65 billion.
Floods in Pakistan resulted in US$30 billion in damage and economic loss this year.
Governments agreed at UN climate talks in Egypt in November to create a fund to cover the losses suffered by vulnerable developing countries devastated by natural disasters.
However, the UN summit ended without new commitments to phase out the use of fossil fuels, despite the need to cut greenhouse gas emissions and slow global warming.
“It is not an acute crisis, but a very long-term crisis, protracted,” Beetsma said. “If we don’t do enough, this will hit us in unprecedented scale.”
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