All is not well with the global economy as countries in our neighbourhood and also in far and wide geographies are in tight grip of severe inflation. In clear terms, the present danger to the global economy is inflation. It has already started behaving as a termite on the economy.
In other words, inflation is dancing merrily around the world, hitting major economies. Statistics reveal that in the US it hovers a 40-year high, with an annual increase of 8.3 per cent in April.
UK’s inflation has also risen to a 40-year high of 9 per cent in the consumer price index in April – the highest since 1989. France witnessed the annual inflation rate at 4.8 per cent in April, the highest since October 1985.
Even as this huge inflation is mostly attributed to the impact of the pandemic, the Ukraine conflict has worsened the situation and controlling the pandemic of inflation seems out of hand, if tough measures are not taken by the central banks across the world to curb it.
To be precise, facing the headwinds today remains a never-seen-before challenge for the world economy and the experts are already talking about the possibility of a global economic recession.
After the invasion of coronavirus variants on human habitations, which brought the global economy to a grinding halt, it’s the conflict in Ukraine which has emerged yet another major threat not only to the recovery of the economy but at the moment it also threatens the forward movement of growth.
Global economic experts are facing a tough time to dish out the exact growth forecasts. They are revising their predictions at regular intervals in line with the events affecting the engines of the global economy. Last month the IMF issued a growth forecast of 3.6% for the year 2022, a downgrade from a 4.4% estimate in January.
Even as a section of economic experts ‘don’t see’ recession hitting the global economy, at the same time they don’t rule it out. Notably, the International Monetary Fund (IMF) said the recession isn’t ‘out of the question’.
Its First Deputy Managing Director Gita Gopinath on Monday in an interview on the sidelines of the World Economic Forum in the Swiss resort of Davos said that the other challenges to the global economy included inflation, a tightening of interest rates by central banks and a slowdown in Chinese growth.
The risks to the economy owing to the Ukraine conflict are rough in nature and vary from country to country. For instance, the European countries are being hit harder in the ongoing Russia-Ukraine conflict than other parts of the world.
Meanwhile in the context of our immediate neighbourhood, the situation is scary. Sri Lanka slipped into the throes of its worst economic crisis since independence. The country is facing a dire shortage of foreign exchange, stalling its imports.
Fuel shortage, rolling power cuts and drastic cut fall in medicine supplies have made the crisis worse in the country. While writing this column, the fuel prices hit record levels – petrol at all-time high of Rs420, diesel Rs.400 per litre. Notably, the government data reveals that the annual inflation in the island rose to a record 33.8% in April compared to 21.5% in March.
All is not well in Pakistan. This time the cause of concern is their worsening economic situation. The Pakistan rupee (PKR) has already crossed 200 against the US Dollar in the open market – a new all-time low.
Dawn news has reported that the Pakistan government is mulling to reduce working days in a week, hoping to save an estimated annual foreign exchange of up to $2.7 billion.
The economic situation prevailing in the neighbouring countries and other parts of the world is by all standards a scary situation for us. The spiraling of food and energy prices in the country has already unnerved domestic households.
They are fast losing the spending capability to the soaring prices of commodities – essential as well as non-essential. India witnessed the consumer price inflation in April at 7.79 per cent – the steepest rise since the 8.3 per cent recorded in May 2014.
However, the best thing is that India is taking measures in anticipation to protect its citizens against any major economic upheaval. Just today (Tuesday) media reported that India is set to restrict sugar exports as a precautionary measure to safeguard its own food supplies, after banning wheat sales just over a week ago.
Reportedly, the government is planning to cap sugar exports at 10 million tonnes for the marketing year that runs through September. The aim is to ensure there are adequate stockpiles before the next sugar season starts in October.
Now let’s come back to the point of debate on economic recession. Experts see recession as a visible possibility in the given food and energy crisis engulfing the countries as the soaring inflation to record levels has been driving government debt levels sharply higher around the world. Recession irrespective of its duration will be a tsunami for a common man.
The Covid-induced lockdowns have already squeezed the households’ income, as they were hit by job losses and drastic cut in incomes. In fact, the pandemic pushed millions of households into debt trap.
At a time when they were trying to gather some momentum to navigate out of the pandemic-induced economic crisis, the Ukraine conflict created yet another economic uncertainty. This time the war-led economic turmoil seems long term and is loaded with elements of recession.
In the context of the J&K region, recession would mean deep-rooted depression. Here, particularly in Kashmir, economic activity is facing a severe slump which is reflected in all forms of manufacturing, commerce and trade.
Indicators like GSDP growth, unemployment rate and credit off take are touching new lows. Despite the fact that the region has been going through three decades of turmoil, most of the businesses in Kashmir have mastered the tactics of surviving the tides of the unrest.
However, the ongoing slump faced by the businesses in Kashmir is taking a colossal form never witnessed before. The prevailing miserable situation that our economy & businesses are in is a result of exposure to sustained systemic risks and callous policy responses from the respective governments over a period of time. However, the current regime is putting its best foot forward to bring economic fortunes to the people at their doorsteps.
Right from the great floods in September 2014 to the pandemic-induced lockdowns, the region’s economy has faced rough weather where households struggled to keep their domestic budgets afloat. The local businesses always struggled to return to their previous turnover figures.
Every time the business community tried to put on a resilient face, something more lethal and devastating came up. Many businesses went overboard in raising debt and returning to normal inventory levels.
This over-leveraged position turned out to be a nightmare as something unexpected used to break loose. All business assumptions were left in dust and all of a sudden focus shifted from businesses to survival of life.
Precisely, here the economic recession has remained a companion of the people. It would simply be a depressing situation if recession hits the global economy.
(The views are of the author & not the Institution he works for)
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.