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Colliding Global Headwinds Escalates Economic Pessimism

From enduring through unprecedented health emergencies and all-pervading European war to battling inflation and market weakenings, the global economy has without a break been facing one crisis upon another. In response to the volatility, the International Monetary Fund (IMF) has downgraded its 2023 global growth forecast from the initial number of 3.6% in January to 2.7% according to their updated report published in October 2022. A major contributing element to the downturn is an omnipresent policy change as central banks attempt to tame skyrocketing inflation. Additionally, the energy market tightening and supply chain interference adds immense pressure to the already-battered economy. Although at a glance developing nations appear to be more vulnerable due to enduring social inequality and dwindling public confidence, developed countries aren’t doing any better. According to the IMF report, the world's three largest powers, namely the United States, the European Union, and China, are predicted to continue to slow while more than a third of the global economy will see two consecutive quarters of negative growth. In the past few years, the world has witnessed more-than-prospected state bankruptcies and financial catastrophe. After Sri Lanka’s bleak collapse, Myanmar’s violent deadlock, and UK’s recent Pound slump, the colliding global headwinds continues to snowball to other parts of the world. Furthermore, 28 countries are currently being concerned by the IMF due to economic instability, conveyed Bahlil Lahadalia, Minister of Investment or Head of the Investment Coordinating Board (BKPM), Wednesday (10/12).

As a severe economic crisis has sparked weeks of protest, Argentina President Alberto Fernandez reshuffled his cabinet on Monday (10/10), and appointed three women to lead the labor, social development, and women & gender ministries. Following the appointment of Sergio Massa in August as Argentina’s fifth economy minister in the last four years, which indicated an ongoing political crisis in the country. Furthermore, a deepening economic crisis, soaring inflation, poor job prospects, and a government struggling to restore public confidence pressured thousands of Argentines to emigrate from the country for the first time in a generation. The population is struggling to survive as the inflation rate is expected to reach 100% by the end of the year. Prices are rising at the fastest pace since the 1990s, mainly caused by excessive money printing, global increases in the costs of fertilizers for farming, and skyrocketing gas imports. Reuters analysts estimated that Argentina’s inflation increased by 6.7% in September of 2022 alone. Meanwhile, the country's debt reached an alarming level being at 80.5% of its GDP in 2021. The government is struggling to fund itself with an ever-increasing pile of domestic debt, low net foreign reserves, and sovereign bonds that have also fallen for four consecutive weeks. Due to these circumstances, the Central Bank of Argentina (BCRA) raised the interest rate to 75%, with potential further increases. In the first half of 2022, the poverty rate exceeded 36%, with the rate of extreme poverty reaching 8.8% or about 2.6 million people. Government welfare programs helped prevent it from rising higher, but despite the limited resources, there have been calls for more social spending.

As more than a third of the global economy will see two consecutive quarters of negative growth, the International Monetary Fund predicted in 2023 it will suffer an economic downturn and the year will feel like a recession for many. In its report, the IMF laid out three major events currently hindering growth: Russia’s invasion of Ukraine, the cost-of-living crisis and China’s economic slowdown, with all of it colliding and creating a volatile period economically, geopolitically, and ecologically. Economic outlook will most likely deteriorate as the global environment remains fragile with 47% of the world population living in poverty, conveyed Axel Van Trotsenburg, World Bank’s managing director at the 2022 annual Meetings of the International Monetary Fund and the World Bank Group on Monday (10/10). On a global scale, the risk of monetary, fiscal, or financial policy miscalibration has surged significantly and financial markets are showing signs of stress and causing an economic slowdown, making policymakers across the world facing a challenging financial instability aligned with the aggressive central bank monetary policy, conveyed David Malpass, President of the World Bank. Emerging markets and developing economies are heavily affected, as the shocks of 2022 will resurrect former turmoil that were only partially healed following the pandemic. On the other side of the world, according to Bahlil Lahadalia, with the government initiatives and policies, Indonesia’s economic condition is relatively safe despite the upcoming recession with 5% of projected growth in 2023. Although the worsening conditions, forecasts of a slump in economic growth, and growing uncertainties may vary from country to country, the world altogether must brace for the forthcoming global recession by working together to reduce the impact and alleviate the crisis.




International Monetary Fund

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