This year’s World Economic Forum took place in Davos in Switzerland in the middle of January amid multiple ongoing crises and urgent calls for collective action and cooperation. Today, we reflect on these crises and their consequences and how the world is coping with their impacts.
I hate to be the bearer of bad news, but the challenges facing the world today are grave, and the consequences of a lingering epidemic and a long-lasting war in Ukraine have resonated around the world. According to the European Union’s Global Risks Report for 2023, severe risks expected to impact the world in 2023 include the “energy supply crisis,” “rising inflation,” and the “food supply crisis,” with the global “cost-of-living crisis already being felt.”
The economic downturn during the Covid-19 pandemic crushed many industries, tourism, travel, and supply chains being among them. Hardships befell millions. Today, a “new normal” has set in, causing a slight economic rebound. However, highly contagious variants of the Covid-19 virus are still circulating, and China’s abrupt lifting of restrictions and the resumption of air travel, generating a surge in infections, may cause yet another resurgence.
As Covid-19 lingers for the unforeseeable future, we can conclude that the world is still not done with it just yet.
In addition, geopolitical tensions continue to shape the global economy. In particular, the war in Ukraine was and remains a major blow, causing the global economy to shrivel. Both Russia and Ukraine are major commodity producers, and Russia is a major energy producer. Hence, the disruption caused by the war has led to soaring energy and food prices, especially for oil, wheat, and fertilisers, raising worries about food insecurity, global hunger, and social tensions.
As a result, food and energy costs have more than doubled against the average of 2.9 per cent recorded between 2010 and 2020, and there does not appear to be any end in sight to the war, at least not in the near future.
The consequences are growing at an exponential rate, inflation being the most significant. As it soars to levels unseen in years, inflation threatens the financial security of ordinary people while eroding their incomes and purchasing power. The fear is that inflation may get worse before it gets better.
According to the EU Science Hub, the main website of the European Commission’s Joint Research Centre, “as of August 2022, inflation has reached or approached double-digit levels in the European Union (10.1 per cent) and the Euro area (9.1 per cent) and surpassed 20 per cent in several Baltic and Eastern European Member States.”
To curb the inflation rate, countries around the world are resorting to higher interest rates, which also cause stagnation and less investment.
More importantly, these consequences are not equally shared as those on low incomes and fixed wages are affected the most. At the same time, at the global level a record number of developing countries are in dire straits, and many are at risk of a deep economic crisis.
The chances are that 2023 will not be much better than 2022, a year when economies slowed down worldwide, and the outlook darkened. The Ukraine war is still ongoing, and the pandemic remains a hazardous reality, so it is likely that premonitions of a recession will materialise.
Indeed, as the global economy continues to shrink and growth worldwide continues to slow, the world will slip into recession only two years after the last recession associated with the pandemic. The International Monetary Fund (IMF) forecasts that global economic growth will slow down to 2.7 per cent during 2023.
So, what does the future hold for the world, and how is it coping with the steeper prices for food and fuel and the currently high inflation?
The next year or two will bring more stagnation, limited growth, and a soaring cost of living. At all levels, businesses will be forced to cut costs and reduce operational expenses with the poor bearing the brunt of the crisis. The likelihood is that this will exacerbate social unrest and societal vulnerability.
At the global level, as IMF Managing Director Kristalina Georgieva has said, “we live in a more shock-prone world, and we need the strength of the collective to deal with the shocks to come.” The IMF’s World Economic Outlook Report says that “amid great challenge and strife, strengthening cooperation remains the best way to improve economic prospects and mitigate the risk of geo-economic fragmentation.”
On how to help countries face the crisis and its consequences, David Malpass, president of the World Bank Group, says that it is “working on a crisis response of around $170 billion in financing capacity to address the wide-ranging needs of client countries between April 2022 and June 2023.”
“Fragile and conflict-affected economies need investment and a vibrant private sector to create jobs, generate economic growth, and build infrastructure,” he said, urging countries to take action to avert a global food crisis, keep markets open, and encourage investment inflows.
Let us hope that the “cooperation” mentioned in this year’s Davos Forum slogan can mitigate some of the burdens caused by today’s crises. Alas, none of the high-profile economists mentioned above have been able to devise concrete methods to alleviate the downwardly spiralling conditions of the world today. Cooperation is a reaction, but it is not a solution.
The bottom line is that the two crises that have caused the current dilemma need to dissipate so that the world can overcome its agony: the light at the end of the tunnel for Covid-19 may be getting closer, but the war in Ukraine must also end soon.
The writer is former professor of communication based in Vancouver, Canada.
*A version of this article appears in print in the 26 January, 2023 edition of Al-Ahram Weekly.