- After a tumultuous year, the global economy heads into 2023 in choppy waters.
Russia’s war in Ukraine continues to affect food and energy markets, and rising interest rates threaten to stifle the economic recovery.
- But the reopening of China after three years of strict pandemic restrictions offers a confidence boost for the global recovery.
- For more stories, go to News24 Business cover.
The world economy had a difficult year in 2022.
As the worst of the public health effects of covid-19 receded, the war in Ukraine and China’s harsh “covid zero” restrictions injected new chaos into global supply chains. Food and energy prices soared as inflation in many economies hit four-decade highs.
After a tumultuous year, the global economy heads into 2023 in choppy waters.
Russian President Vladimir Putin’s war in Ukraine continues to weigh on food and energy markets, while rising interest rates threaten to stifle the still-fragile post-pandemic recovery.
On the bright side of the ledger, China’s reopening after three years of strict pandemic restrictions offers a confidence boost for the global recovery, albeit tempered by fears that the virus’s rampant spread among the country’s 1.4 billion people could give rise to more lethal variants. .
Inflation and interest rates
Inflation is expected to decline globally in 2023, but will nonetheless remain painfully high.
The International Monetary Fund (IMF) forecast that global inflation will reach 6.5% in 2023, up from 8.8% last year. Developing economies are expected to get less relief, with inflation only projected to decline to 8.1% in 2023.
“Inflation is likely to remain stubbornly above the 2% benchmark that most Western central banks have set as a benchmark,” Alexander Tziamalis, an economics professor at Sheffield Hallam University, told Al Jazeera.
“Energy and raw materials will remain expensive for some time. The partial reversal of globalization means more expensive imports, labor shortages in many Western countries leading to more expensive production, and ecological transition measures to combat greatest threat facing our species are leading to higher inflation than we have been used to during the 2010s.”
Slowdown in growth and recession
While price growth is expected to slow in 2023, it is certain that economic growth will also slow sharply along with rising interest rates.
The IMF has estimated that the world economy will grow by just 2.7% in 2023, up from 3.2% in 2022. The OECD has projected a lower performance this year of 2.2% growth, compared with the 3.1% from 2022.
Many economists are more pessimistic, believing that a global recession is likely in 2023, just three years after the recession caused by the pandemic.
In a column last month, Zanny Minton Beddoes, editor-in-chief of The Economist, painted a bleak picture that was summed up in the article’s unequivocal headline: “Why a global recession is inevitable by 2023.”
READ | Six climate breakthroughs that made 2022 a step toward net zero
Even if the global economy doesn’t technically slip into recession, broadly defined as two consecutive quarters of negative growth, the IMF’s chief economist recently warned that 2023 may still seem like one for many people due to the combination of slowing growth, high prices and increase interest rates.
“The three largest economies, the United States, China and the euro area, will continue to be stagnant,” Pierre-Olivier Gourinchas said in October. “In short, the worst is yet to come, and for many people, 2023 will feel like a recession.”
china reopening
After nearly three years of punishing lockdowns, mass testing and border closures, China earlier this month began the process of undoing its controversial “covid zero” policy after rare mass protests.
With draconian restrictions within the country a thing of the past, China’s international borders will reopen from January 8.
The reopening of the world’s second-largest economy, which has slowed sharply over the past year, should inject fresh impetus into the global recovery.
A rebound in Chinese consumer demand would boost top exporters including Indonesia, Malaysia, Thailand and Singapore, while an end to restrictions offers relief to global brands from Apple to Tesla, which suffered repeated disruptions below “zero.” Covid”.
At the same time, China’s rapid U-turn away from “covid zero” carries significant risks.
While Beijing stopped publishing Covid statistics, China’s hospitals were inundated with the sick, while morgues and crematoria reported being overwhelmed by the influx of bodies.
Some medical experts have estimated that China could see up to two million deaths in the coming months.
With the virus spreading rapidly among China’s colossal population, some health experts have also raised concerns about the emergence of new, more dangerous variants.
“Except for this very disruptive opening, I think the market will do very well,” Alicia García-Herrero, chief economist for Asia Pacific at Natixis, told Al Jazeera.
“I would say that once people see the end of the tunnel, maybe the end of January, at the end of the Chinese New Year, I would say that is when the markets are really going to read a quick recovery of the Chinese economy,” Garcia-said. Blacksmith added.
“The other thing to look at is if there’s a major mutation, and mutations may be less lethal but could also be more lethal, and I think if the latter happens, and we start to see border closures again, that would be traumatic for investor confidence.
bankruptcies
Despite the economic devastation wrought by Covid-19 and lockdowns, bankruptcies actually declined in many countries in 2020 and 2021 due to a combination of out-of-court settlements with creditors and large government stimulus.
In the United States, for example, 16,140 companies filed for bankruptcy in 2021 and 22,391 companies did so in 2020, compared to 22,910 in 2019.
That trend is expected to reverse in 2023 amid rising energy prices and interest rates.
Allianz Trade has estimated that global bankruptcies will rise by more than 10% in 2022 and 19% in 2023, eclipsing pre-pandemic levels.
READ | Seven JSE-listed companies that suffered stock declines in 2022
“The covid pandemic forced many companies to take out substantial loans, worsening a situation of increasing reliance on cheap loans to offset the loss of Western competitiveness due to globalization,” Tziamalis said.
“The survival of highly indebted companies is now in question as they face a perfect storm of higher interest rates, higher energy prices, more expensive raw materials, and less consumer spending…Also It is worth noting that the appetite of Western governments for any direct aid to the private sector has been curbed by their higher deficits and the prioritization of support for households.
unraveling globalization
Efforts to roll back globalization picked up speed this year and look set to continue apace in 2023.
Since its launch under the Trump administration, the US-China trade and technology war has deepened under the Joe Biden presidency.
In August, Biden signed the CHIPS and Science Act that blocks the export of advanced chips and manufacturing equipment to China, a move aimed at stifling the development of China’s semiconductor industry and bolstering self-sufficiency in chip manufacturing.
The passage of the law was just the latest example of a growing trend away from free trade and economic liberalization toward protectionism and greater self-sufficiency, especially in critical industries linked to national security.
READ | The world economy is heading for a recession in 2023, says a researcher
In a speech earlier this month, Morris Chang, founder of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chipmaker, lamented that globalization and free trade are “almost dead.”
“The West, and particularly the United States, are increasingly threatened by China’s economic trajectory and are responding with economic and military pressure against the emerging superpower,” Tziamalis said.
“An open war over Taiwan is highly unlikely, but more expensive imports and slower growth for all countries involved in this trade war are almost a certainty.”
