The International Monetary Fund (IMF) has provided one of the bleakest global economic forecasts of the past two decades, projecting global economic growth to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. According to the IMF, the cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, economic slowdown in China and the lingering COVID-19 pandemic combine to weigh heavily on the negative global economic outlook.

Between 2023 and 2024, the IMF predicts that one-third of the world economy will likely contract against the backdrop of dwindling real incomes and growing prices. Furthermore, the three largest economies, the United States, China, and the euro area will continue to stall.

Pierre-Olivier Gourinchas, Economic Counsellor and the Director of Research at the IMF, contends that the shocks to the global economy will re-open economic wounds that were only partially healed post-pandemic. Gourinchas also asserts that the worst is yet to come and, for many people, 2023 will feel like a recession.

For many people, 2022 already feels like a recession and the idea that the worst is ahead is difficult to comprehend. Yet, many signs point in the direction of things getting much worse before they get any better.

On October 5, 2022, the members of the Organization of the Petroleum Exporting Countries (OPEC), as well as some non-members (OPEC+), decided to cut petroleum output by 2 million barrels per day in November. This will ensure that oil prices remain elevated for some time yet, meaning that businesses and consumers will continue to pay premium prices for gas, petrol and electricity.

The intersection of energy and geopolitics, especially in Europe where Russia is expected to squeeze European countries dependent on Russian oil in the coming winter, and probably the next, will send further shock waves across Europe and the rest of the world. Supply side challenges with respect to foodstuff and other vital consumer goods will also continue to contribute to an overall volatile global economic environment.

Few will be spared the impact of these global developments, but the poorest will feel it most, whether they are poor countries, poor people in poor countries or even poor people in rich countries. In these circumstances, governments must design and implement policies to protect the most vulnerable.

Beyond addressing some of the immediate challenges, the current times also call for innovation in thinking and doing. To build resilience to a hostile global environment and economic fragility at home, the time is ripe to make massive investments in digitalisation, green industrialisation and economic diversification. In all these areas, government and the private sector can be co-creators.

In the area of digitalisation, greater investments in digital education, infrastructure and digital services can accelerate development and help grow the economy. Being able to offer digital services in areas such as healthcare, banking, commerce, and government administration should become the norm.

With respect to green industrialisation, the United States (US), European Union (EU) and several other countries are making huge investments in green sectors such as renewable and alternative energy and low-emitting technologies. Ultimately, success with green industrialisation will leave these countries much less reliant on petroleum and provide a greater buffer for their economies against energy volatility, whilst also contributing to the fight against climate change.

On economic diversification, it is risky business to put all eggs into one basket. For example, an economy that is too heavily reliant on tourism is vulnerable to disruptions to global travel.

Similarly, an economy that is overly reliant on a single or very few commodities would be at the mercy of global market forces. In this regard, economic diversification takes on added significance.

Countries need to develop some amount of domestic capacity across multiple sectors, even if to at a minimum, satisfy the domestic market. With advances in technology, it is also much easier now to boost productive capacity for exports.

The immediate priorities now for many countries are to address the pressing concerns of the day – high food prices, high petroleum prices, mounting debt and generally unfavourable conditions. However, countries must also remain forward looking and make the investments today which will generate dividends tomorrow.

Joel K Richards is a Vincentian national living and working in Europe in the field of international trade and development.
Email: joelkmrichards@gmail.com