What five major challenges will the world economy face next year?
2022 was the year when the global economy was expected to recover from the devastation caused by a global pandemic like Covid-19, but then Russia invaded Ukraine on February 24, throwing the economy into a quagmire of uncertainty.
The war in Ukraine and subsequent Western sanctions against Russia have fueled geopolitical tensions, sending energy and food prices to record highs and disrupting supply chains. This has hampered the recovery of the global economy.
Inflation has changed Germans’ holiday plans
Inflation rates hit multi-year highs, forcing the central bank to raise interest rates. This has made access to credit more difficult and, with the currency depreciating, has increased the chances of a recession in 2023 for an already sluggish economy.
But recession is only one of many economic problems we may face next year. A look at the biggest challenges facing the global economy in 2023
Risk of recession
It is expected that 2023 could be the third worst year for global economic growth in the current century after 2009. In 2009, the global financial crisis triggered a major recession, and then in 2020, the global economy came to a complete standstill due to the Covid-19 lockdown.
Central banks continue to raise interest rates to reduce consumer demand for goods and services due to rising inflation. Therefore, analysts expect that the major economies of the world, including the United States, the Eurozone and the United Kingdom, will also slip into recession in the coming year.
The Eurozone appears to be less dependent on Russian fossil fuels and is currently facing a severe energy crisis. In this scenario, the UK is likely to witness a deeper recession than its peers.
Recession risk in Germany and Italy, IMF
Analysts at the Institute of International Finance wrote in a research note, “The magnitude of the damage to global GDP will depend primarily on the pace of the Ukraine conflict. Advanced economies will shrink and a stronger dollar will hurt exports. This will also spell trouble for export-oriented Asian economies.
However, the consolation is that this recession will be short-lived and not as severe as initially feared. However, due to this, there will be a slight increase in the unemployment rate
“As inflation now appears to be easing around the world, central banks need to take their steps off the brakes soon, in order to start a recovery from late next year (2023),” Green Economics said in December. The process can begin.”
General commodity price increases are likely to moderate in 2023 due to lower demand, falling energy prices, easing supply and lower shipping costs. However, inflation rates will still remain above the central bank’s target level, which will push interest rates higher, in other words, more painful for the economy.
Inflation is expected to come down more slowly in the Eurozone than in the US. Inflation is expected to ease in the euro zone’s economic engine, Germany, thanks to measures such as capping gas and electricity prices. But core inflation, which keeps food and energy prices volatile, could remain stubbornly high.
Andrew Cunningham, eurozone economist at Capital Economics, said the resilience of the (eurozone) economy, and labor market in particular, suggests inflation may be higher than we expect. Inflation will gradually fall further. However, services
The increase in wages in the sector will also keep inflation high.
Andrew Cunningham says, “There are several dangers to this prediction. Among the ‘knowns and unknowns’ will be the impact on energy markets, depending on the Ukraine war and the weather, and how German manufacturers deal with high energy prices.
The chaos of Covid-19 in China
Just weeks before the start of 2023, China has announced it is abandoning its controversial zero-coronavirus policy, while the country’s rapid outbreak has taken a worrying toll on the country’s healthcare system. Is.
Given the experience of other countries, this fresh wave of infections is expected to cause short-term disruption to the world’s second-largest economy. It could also set back the fragile recovery of global supply chains. This also raises the risk of a new wave of the corona virus and its spread to other parts of the world.
Although the near-term outlook looks bleak, analysts expect a slightly brighter recovery in the Chinese economy by the end of 2023. That’s because as Beijing ends its zero-tolerance policy on Covid-19, it has announced its support for reviving the country’s ailing property sector, which accounts for about a quarter of China’s economy. is based on
“A Chinese recovery coupled with a regional reopening means Asia could have a good 2023,” Deutsche Bank Chief Investment Officer Christian Nolting wrote in a note to clients. , “could stabilize the economies of neighboring and many commodity-exporting countries (such as those in Latin America), as China is also the largest consumer of general goods.”
The poor energy situation in Europe will be a headache for governments especially in 2023. Less severe weather this year
And Europe may be able to avoid a full energy crisis this winter thanks to consumers cutting back on their energy use.
Lower demand for energy to keep homes warm means the region’s storage facilities, which were full last year, could be full well into the end of this winter. As a result, gas prices are likely to remain stable next spring, which will also help moderate inflation.
However, the situation before next winter could be difficult. After spending hundreds of billions of euros last year to find alternatives to Russian energy and protect consumers, Europe may struggle to fully replenish its reserves. Especially in a situation where China is trying to fully reopen to liquefied natural gas and traditional Asian buyers like Japan and Korea are also in the market.
Nolting says energy remains a key risk factor for the region, with gas shortages likely in the winter of 2023/2024.
Geopolitical tensions and technology wars
Like last year, military and political tensions will continue to be the biggest threats to the economy. On the one hand, there is no end in sight to Russia’s war in Ukraine, and on the other hand, the clouds of conflict between the US and China over Taiwan are getting deeper. North Korea’s record missile test has heightened tensions on the Korean Peninsula and is likely to keep investors on their toes.
“The solution to ending the Russian invasion of Ukraine is not yet in sight,” Nolting says. This means that the effects of war on issues such as mobility, fossil energy, global commodity supply and food remain unresolved, while the effects of the conflict spill over into other areas. There is a possibility of
The battle for technology supremacy between the US and China may also intensify in 2023. Last year, Washington banned the transfer of advanced American semiconductor technology to China.
“A trade dispute has now turned into an effort to establish long-term standards in critical areas, such as 5G, artificial intelligence and chips,” Nolting says. Success in this can be the basis of guaranteeing the strength of the country in the long run. So both sides are not going to give up the competition easily
This report has been prepared by Mufti Ziya Qasmi