The biggest loser of the energy crisis? Global economic recovery
- With no resolution of the war in Ukraine or the energy crisis in sight, global financial stability will come under mounting pressure
- Global policymakers must provide much more multilateral support to struggling nations as the world cannot afford another financial shock
There will be winners and losers from the global energy crisis, but it’s a less than zero-sum game for the world economy as it slides towards possible recession in the next year.
The major forecasting bodies seem behind the curve on spelling out how bad it might get over the future. The latest forecasts from the Organisation for Economic Co-operation and Development, the International Monetary Fund and the World Bank seem in a reasonable consensus that global growth will slow down from 5.7 per cent in 2021 to around 3 per cent for 2022 and 2023.
There might be strong headwinds to contend with, but the general conclusion is that global recession can be avoided if policymakers manage to intervene in time. The trouble is that global monetary and fiscal policies are heading in different directions now.
Whether the whole world falls into recession, as it did following the 2008 global financial crisis and during the Covid-19 pandemic, some parts of the global economy are clearly exposed, not least Europe. The severe squeeze on living standards from higher inflation is making its mark on European consumer confidence.
As a major part of the global economy, any cooling in European demand is bound to have serious implications for the rest of the world. In its summer forecasts, published in August, the European Union slashed its expectations for German growth in 2023 down to 1.3 per cent from its earlier projection for 2.4 per cent made in the spring, implicitly acknowledging the strong possibility of European recession.
It is the developing world that will be most at risk, especially those countries which have high energy import needs while suffering major balance of payments shortfalls and carrying high dollar-based debt.
Global policymakers must provide much more multilateral support to these nations to avoid a systemic collapse in confidence. After the 2008 crash and the Covid-19 crisis, the world cannot afford another financial shock.
David Brown is the chief executive of New View Economics