The world economy agenda at the mercy of geopolitical fragmentation, pandemic and climate change, unfortunately with this order of priorities
By Pablo Llopis, free writer, 25th January 2023
When considering the topic for the CNS weekly opinion piece last week, a number of subjects came up, but they were all somehow connected to the topics being debated by the major international organizations, business titans, and governments in Davos 2023 at the moment—with the exception of Russia.
In contrast to tackling specific economic problems and environmental impacts, all leaders and elites concur that the year 2023 will encounter political challenges and an environment of uncertainty unlike any other. This is without a doubt the greatest concern and will guide decision-making in an already inflated environment, with high debt of the large economies after the crisis brought on by the pandemic, the main and, as a result, budgetary of governments with little room for social, which can increase the social imbalance if spending is not managed sanely and we return to the path of economic recovery, based on the productive improvement of the economies.
In this regard, and following the conclusion of this summit on January 20, we highlight some of the most significant issues during 2023 that, in our opinion, everyone should pay special attention to:
- The FMI and the World Bank fear that a third of the world economies could fall into a recession during 2023 and increase the storm of public debt, as happened to the former British prime minister, Liz Truss, in which the markets stop financing a state for fear that its debt is unsustainable. In the jargon of financial markets it is called “the accident” and nobody dares to say where it will start, in which debt auction of which country.
- The war in Ukraine is undoubtedly a global conflict, with the risk of escalating nuclear. In this sense, if a nuclear war occurs, the resources of the nations will prioritize military purposes, as well as impacts already seen in 2022 with a reduction in the supply of resources, and increase in inflaction. For instance, the comeback of a significant energy consumer like China may lead to price increases. This is compounded by the effects of a significant source—Russia—disappearing as a result of sanctions.
- “Globalization is no longer generated by market forces, but by political power, and the worst scenario must be avoided: fragmentation instead of cooperation” warned Le Maire. The danger of globalization à la carte, with blocs of countries without internal tariffs between them, but against others, is growing. Not only between the United States and China, but also with the European Union. The so-called Joe Biden Inflation Reduction Act with more than 350,000 million subsidies is a vacuum cleaner of European companies that horrifies Le Maire, who calls for a counterattack with more European aid and speeding up concessions. For Georgieva, fragmentation can cost the world economy 7 trillion dollars and a race for subsidies between the great powers will harm the rest of the world.
- The virus has receded into the background at Davos, but Summers lists it among the risks of 2023: “If the virus gets worse, the economy won’t be ready for that.” Governments no longer have budgetary room to do much more,” Georgieva said. For this reason, both the US economist and the president of the ECB, Christine Lagarde, agreed on the importance of central banks winning the battle against inflation and not giving in to populist requests that they relax rates so as not to cool the economy any further.
Outside the Davos congress center, activist Greta Thunberg was demonstrating, reminding the elite of global capitalism of the greatest risk of all: climate change. In the Forum, awareness of the need for sustainability and decarbonization has multiplied, but short-term problems are multiplying.
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