The global economy faces more pain in 2023 after a dismal year

This was supposed to be the year of the comeback of the global economy after the Covid pandemic.

Instead, 2022 was marked by another war, record inflation and climate-related disasters. It was a year of “polycrisis,” a term popularized by historian Adam Tooze.

Prepare for more sadness in 2023.

“The number of crises has increased since the beginning of the century,” said Roel Beetsma, professor of macroeconomics at the University of Amsterdam.

“Not since the Second World War have we seen such a complicated situation,” he told AFP.

After the Covid-induced economic crisis of 2020, consumer prices began to rise in 2021 as countries emerged from lockdowns and other restrictions.

Central banks insisted that high inflation would only be temporary as economies returned to normal. But Russia’s invasion of Ukraine in late February sent energy and food prices soaring.

Many countries are now facing cost-of-living crises because wages are not keeping up with inflation, forcing households to make tough spending decisions.

Central banks have played catch-up. Interest rates began rising this year in an effort to tame runaway inflation, with the risk of plunging countries into deep recessions as higher borrowing costs mean slower economic activity.

Finally, inflation has begun to slow down in the United States and the Eurozone.

According to the Organization for Economic Co-operation and Development, consumer prices in the Group of 20 emerging and developed countries are expected to reach eight percent in the fourth quarter before falling to 5.5 percent next year .

The OECD encourages governments to provide aid to help households.

In the 27-nation European Union, €674 billion (R12 trillion) has been allocated so far to protect consumers from high energy prices, according to the Bruegel think tank.

Germany, Europe’s largest economy and the most dependent on Russian energy supplies, accounts for 264 billion euros of this total.

One in two Germans say they now only spend on essential items, according to a survey by consultancy EY.

Rising interest rates have also hurt consumers and businesses.

Both the U.S. Federal Reserve and the European Central Bank began slowing the pace of rate hikes in December, but signaled further hikes are needed to control inflation.

Economists expect Germany and another major eurozone economy, Italy, to fall into recession. The British economy is already contracting. The rating agency S&P Global predicts the stagnation of the euro zone in 2023.

But the International Monetary Fund still expects the global economy to expand in 2023, with growth of 2.7 percent. The OECD predicts a growth of 2.2%.

The easing of Covid restrictions in China is raising hopes for a revival in the world’s second-largest economy and the main driver of global growth.

The sidewalks had torpedoed China’s economy and sparked protests across the country.

China signaled this week that it would reopen to the world as it announced it would end quarantines for overseas arrivals from January 8.

But for Beetsma, the biggest crisis is climate change, which is “happening in slow motion.”

Natural and man-made catastrophes have caused economic losses of $268 billion through 2022, according to reinsurance giant Swiss Re. Hurricane Ian alone cost an estimated $50 billion to $65 billion in insured loss.

Floods in Pakistan caused $30 billion in damage and economic losses this year.

Governments agreed at the United Nations climate talks (COP27) in Egypt in November to create a fund to cover the losses suffered by vulnerable developing countries devastated by natural disasters.

But the COP27 summit ended without new commitments to phase out the use of fossil fuels, despite the need to reduce greenhouse gas emissions and slow global warming.

“It’s not an acute crisis, but a very long-term, protracted crisis,” Beetsma said.

“If we don’t do enough, this will affect us on an unprecedented scale.”

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