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PolycrisesAfter the shocks of 2022, the world economy will pay the broken pots
People throng to Frankfurt’s Christmas market on November 21. In Germany, due to inflation, one in two people say they now only buy what is strictly necessary.
AFP
Soaring prices, war, rate hikes, global warming… Expected to be in good shape in 2022, the world economy has finally suffered a succession of crises aggravated by the Russian invasion of Ukraine, suggesting a bleak year 2023.
2022 will remain the year of “polycrises”, according to the expression popularized by historian Adam Tooze: heterogeneous shocks which interact, making the whole overwhelming.
These shocks “have increased since the beginning of the century”, with the 2008 financial crisis, that of sovereign debt, the pandemic, the energy crisis, underlines with AFP Roel Beetsma, professor of economics at the University of Amsterdam. For him, the world “has not known such a complicated situation since the Second World War”.
Persistent inflation
After years of sluggishness, its return was to be temporary, concomitant with the post-pandemic relaunch, the experts said in unison a year ago. The Russian invasion of Ukraine and the energy boom have reshuffled the cards.
Unmatched since the 1970s and 1980s, rising prices are pushing millions of households in developed countries into precariousness and threatening those in poor countries with increased misery. However, it has started to slow down, to 10.1% over one year in November in the euro zone and to 5.5% in the United States.
Inflation might fall in 2023 and 2024 in the major developed and emerging countries of the G20, according to the OECD, which recommends more targeted aid to get out of it. In particular in France and Germany, which, like others, had to reopen the checkbook to help households and businesses. In the European Union alone, 705 billion euros have been promised to them since September 2021, according to the Bruegel think tank. Including 264 billion for Germany, where one in two people say they now only buy what is strictly necessary, in a survey by the firm EY.
Holder of a stand on the Christmas market in Frankfurt, Nicole Eisermann observes that “everything has become more expensive, between fresh cream, wine, electricity”. “I’m going to be careful, but I have a lot of children and grandchildren” who want gifts, smiles, further on, one of the shoppers, Günther Blum.
Central banks tougher
Stronger but above all longer: Central bankers in Europe and the United States, as well as most of their counterparts in the world, resumed the path of interest rate hikes and warned that they would continue the movement in 2023 .
In mid-December, the American Fed and the European ECB admittedly reduced the magnitude of their rate hikes. But they showed their determination to continue to fight once morest well-established inflation.
It is not without risk: the strategy weighs down economic activity a little more by making borrowing conditions more expensive for households and businesses, fueling fears of recession. Ditto for the States, more indebted since the financial crisis and the pandemic, and for some now threatened with instability or default.
A symbol sums up the mood of economic grimace soup: the S&P 500 index of the largest American stock market capitalizations is heading for its worst year since the financial crisis of 2008.
Recessions and a climate crisis on the horizon
The planet is still far from generalized recession next year: the OECD predicts another 2.2% of growth and the IMF 2.7% – but it has warned in recent weeks that the chances of arriving at only 2% had increased.
The UK has already declared itself to be “in recession”, and many economists believe that Germany and Italy will follow next year. In the euro zone, the rating agency S&P Global is expecting a particularly difficult first quarter and GDP stagnation over the year. A further deterioration in the outlook following those announced throughout 2022.
At the same time, the Chinese locomotive is running out of steam: a drop in the country’s growth prospects for 2022 and 2023 is now “very likely”, IMF managing director Kristalina Georvieva told AFP in mid-December, foreseeing “some difficulties with Beijing’s change of course in the face of the Covid. The end of the zero Covid policy will necessarily lead to “an increase in the number of infections with consequences for the smooth running of the economy”, she underlined.
But “the worst crisis, which is taking place in slow motion, is the climate crisis,” says Roel Beetsma. Faced with the multiplication of disasters, ambitions remain too timid, like COP27, which failed to set new targets for reducing greenhouse gas emissions.
“Europe’s energy reconfiguration will take years,” also warns S&P Global. States’ difficulty in managing soaring energy prices reflected their slowness in transition. “If we don’t do enough, it will hit us on a scale never seen before,” thinks Roel Beetsma.
(AFP)