The Covid pandemic, energy shortages, geopolitical vulnerabilities – all of these global issues have not been adequately addressed by the international community in the past several years. This brings us yet again to the need for changes in global governance – the increasing intensity and frequency of global recessions puts into doubt the adequacy of the existing global framework, writes Valdai Club Programme Director Yaroslav Lissovolik.
According to the IMF, the world economy is increasingly vulnerable to the risks of an outright recession, with all the main centres of the global markets experiencing notable difficulties. In the case of the US, this is the high inflation and the Fed rate hikes that are adversely affecting economic activity. In Europe, apart from concerns over high inflation, there is the lingering threat of energy shortages. In China, economic activity has fallen notably compared to the preceding year, which is in part due to the persistence of the adversities associated with the Covid pandemic. The increasing frequency of recessions in the global economy raises questions about the adequacy of the current framework of global governance in the economic sphere.
The criticality of China in the overall growth dynamics of the global economy has become increasingly pronounced in recent periods, with its outperformance during the Covid pandemic downturn of 2020 being one of the cases in point. This time around, China’s ability to deliver greater stimulus to the world economy will be strengthened by the numerous efforts undertaken to open up its economy to developing countries through regional and numerous bilateral trade accords. Stronger stimulus impulses across the Global South may also be facilitated by some of the platforms created by China with other developing countries – such platforms include the Belt and Road Initiative (BRI), BRICS+ as well as sizeable regional integration groupings such as RCEP.
There may also be new stimuli launched by China to boost its economic growth. Previous anti-crisis measures in China tended to prioritize the development of infrastructure as well as high tech sectors/digital economy of the economy in order to use the crisis as an opportunity to modernize the national economy. There will be a need also to accord greater priority to addressing some of the vulnerabilities in China’s economic landscape that include the state of the housing market and high debt levels across some of the sectors and corporates.
Apart from China, there is another developing economy that can play a crucial role in the anti-crisis efforts in the course of next year – that country is India and its global role will be magnified by its chairmanship in the G20 in 2023. This could be an opportunity for the two largest developing economies of the Global South – India and China – to work jointly on coordinating the anti-crisis efforts for the benefit of the developing economies. Such pragmatic cooperation between India and China could include cooperation in incorporating the BRICS New Development Bank/BRICS CRA into the global anti-crisis network that would include the World Bank/IMF and regional development institutions. Another possible venue would be to strengthen the coordination among the developing economies of G20 with the view to aligning their anti-crisis efforts for the benefit of the developing world, most notably the least developed economies.
As for the advanced economies, their fair share in global anti-crisis efforts could include trade liberalization, increased involvement in building common platforms with the Global South and coordinating a recovery that is conducive to containing inflationary pressures. The latter will prove particularly difficult in view of higher inflationary expectations, elevated debt burden at the corporate and sovereign levels, as well as a protracted reliance of regulators and policy-makers on expansionary fiscal/monetary policy vs. structural adjustment.
In the end, the global economy is encumbered by the rising weight of the systemic “global problems” that have accumulated over the past several years. The Covid pandemic, energy shortages, geopolitical vulnerabilities – all of these global issues have not been adequately addressed by the international community in the past several years. These “black swans” of the past are becoming the bête noire of the present and the future. This brings us yet again to the need for changes in global governance – the increasing intensity and frequency of global recessions puts into doubt the adequacy of the existing global framework. A more effective revamped governance system would address critical issues such as: ex-ante crisis diagnostics and prevention; an effective coordinated anti-crisis response; greater scope for developing and small economies to have their say in key decisions. Clinging to the dysfunctional status quo at all costs may render the latter unbearable, in which case as Romans put it: Mala tempora currunt, sed peiora parantur.
Please feel free to write to Yaroslav Lissovolik: y.lissovolik@valdaiclub.