The year is approaching its end, ushering in the customary season for sharing prognoses for the coming year. More often than not, such predictions fail to materialise, regardless of how assiduously analysts apply their analytical paradigms and mathematical models, or claim to do so.

The general uncertainty that prevails today makes the chances of predictions coming true little better than a stab in the dark, and if they do come true, it is more accurate to attribute that to pure coincidence. If you doubt this, just turn back to the forecasts that international agencies have been making over the past three years since the outbreak of the Covid-19 pandemic about global economic growth, inflation rates, the exchange rates of the major currencies, and the prices of oil, food, precious metals and other commodities. 

It is harder to deal with the current state of uncertainty than with areas of high-risk speculation where at least the experts can work out quite accurate probabilities. For in today’s world of intense flux, a deficit of trust and a surplus of crises, the interrelated variables are so complex that prediction is an exercise in futility, making the Danish Nobel Laureate in physics Niels Bohr’s famous remark that “prediction is very difficult, especially about the future” an understatement.

Therefore, when dealing with the forecasts that we will all soon be hearing about for next year, the best advice is to take them with a grain of salt before rejoicing at the more optimistic ones or growing more depressed as a result of those that are more pessimistic. 

Given the current complexities, the bodies that are in charge of decision-making should do two things in tandem. First, they should use all the available data and information to guide them, ensuring that the information at their disposal is as detailed and up-to-date as possible. Second, they should follow economic and political developments and trends closely, assessing their relative impacts on decisions under consideration and devising alternative scenarios with sufficient leeway to accommodate sudden changes. 

They should remember that a strong state needs flexible policies to strengthen its resilience against potential shocks. 

To elucidate this, at the time of writing the global inflation rate appears to be receding in terms of wholesale prices. The price of oil has also fallen by 19.5 per cent in a month to about $72 a barrel, despite reduced production rates. Shipping and transportation costs have decreased as well. The US network CNBC reported recently that after the unprecedented rise in shipping and transportation costs due to the disruption in supply chains last year, the costs of container shipping from China to the eastern seaboard of the US have fallen by about 90 per cent since last year. 

The rate at which prices had been rising in the US has continued to decline since June. In the Eurozone, the monthly inflation rate has fallen for the first time in 17 months, according to the London Financial Times.

These trends bring us back to the interest rate policies of the central banks that issue the world’s major currencies, the timing of the shift to lowering interest rates, and whether such actions will be performed at the right pace, in the right time frame, and by the right increments. 

Central banks do not lower interest rates in response to appeals, the most convincing of which is that raising interest rates has caused more harm than good. Rather, they act when they realise that after all the economic tolls that a particular interest rate hike has incurred, the core inflation rate, which does not include fuel and food prices, has in fact begun to fall steadily and that inflation expectations have become less pessimistic. 

Lowering interest rates bolsters the employment and wage trends needed in the labour market to avert further detrimental repercussions from the recession. But one factor that has complicated decision-making in this regard is the fatal mistake that the major central banks made in delaying the interest rate hikes to begin with. They are being extra cautious now because they do not want to be blamed again, this time for being too hasty and relaxing their money tightening measures prematurely. It is most likely, therefore, that they will first slow their interest rate hikes and then keep them fixed for a while before lowering them. 

At this stage, it is crucial to restore confidence between the monetary authorities, investors and the financial markets, which means that decisions should be consonant with market trends and anticipated changes and that more accurate and up-to-date information must be available. Precarious times such as these also require closer coordination between fiscal and monetary policies, whilst bearing in mind that it is a duty, not a prerogative, of modern economic policy makers to communicate effectively with the public and to keep all the concerned parties abreast of the steps they take at every stage. 

Everyone is affected by economic policies, not just the elites, so the general public should be properly informed so that it can be prepared for economic changes and bumps in the road ahead, especially when dealing with such pressures as debt and stagflation.

This brings us to the question of monitoring economic and political trends with an eye to optimising benefits or minimising risks. I will reiterate the challenges that a number of important studies have maintained will shape the 21st century. In his widely acclaimed book “The Power of Crisis,” political scientist Ian Bremmer discusses how three global challenges and the ways humankind responds to them will change the balances of power in the world. These challenges are: (1) health and pandemics; (2) climate change; and (3) disruptive technology and AI. 

Equally important is the exhaustive study by Nobel Laureate in economics Jean Tirole and Olivier Blanchard on the major economic challenges to France, which they sum up under three headings: the country’s ageing demographics; inequality in wealth and income distribution; and climate change. 

The well known economist Nouriel Roubini has combined the foregoing and more into a single work that appeared in October called “Mega-Threats: Ten Dangerous Trends That Imperil Our Future and How to Deal with Them.” The first of these is the international debt crisis, and he goes on to discuss the “demographic time bomb,” “private and public [sector] failure,” “currency meltdowns and financial instability,” “the end of globalisation,” “the AI threat,” and “the new Cold War.” Needless to say, climate change figures in his prognosis in the chapter entitled “An uninhabitable planet?”

On the other hand, if you prefer a list of prognoses that is condensed to one major challenge, then I recommend Gaia Vince’s “Nomad Century: How Climate Migration Will Reshape Our World.” In this compelling work, the award-winning British environmental journalist explains how the adverse effects of climate change and climate disasters will displace increasing numbers of people and push large numbers from warmer climates in the South, Asia, Africa, and Latin America northwards. She tells the countries of the North that they had better be prepared for unprecedented influxes of climate migrants as long as they keep pumping harmful greenhouse-gas emissions into the atmosphere at the current rates.

The world has no shortage of financial resources, scientific ingenuity, and technological wherewithal to deal with the above-mentioned challenges, whether they present short-term problems or long-term threats. What is seriously lacking is the political will to marshal the resources and solutions for the parts of the world that desperately need them. 

In a previous article about the Marshall Plan for the reconstruction of Europe after World War II, I mentioned that international cooperation at that time was driven by a belief that “winning the peace is more important than the victory in the war.” But that wisdom died out along with its architects. Today, international cooperation has little to drive it apart from fear and a feeble sense of guilt.

Fear sometimes prompts decisions in the corridors of power of the rich nations to ease open the taps of financial aid to the developing nations in order to reduce the “threat” of forced migration due to poverty, political and economic upheaval, warfare and environmental and climate disasters. Lingering guilt might explain why certain powers keep aid coming to the countries that they plundered and impoverished during the periods of colonial rule and then drained of their natural resources afterwards using exploitative practices.

Perhaps the least pernicious of such practices are the illicit outflows of money from the countries of the South to the North, the biased terms of trade and intellectual property, double standards in international finance and the unbalanced governance of international financial institutions, and unfair and inefficient mechanisms for providing the necessary funding for sustainable development and climate action.

It is in the interest of all the members of the international community to overhaul the world’s financial and economic structures, instead of throwing sand into the eyes of the poorer and vulnerable economies or continue the malpractice of making pledges that are rarely met.

---

*This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.

*A version of this article appears in print in the 15 December, 2022 edition of Al-Ahram Weekly