The consequences of the coronavirus pandemic and the emergence of new strains can literally split the global economy. Analysts of the World Economic Forum (WEF) came to this conclusion. The continuation of the covid crisis will result in a shortage of raw materials, galloping inflation, growing social inequality, geopolitical conflicts and a dangerous increase in debt burden. Details – in the material “Izvestia”.
Vaccination and investment
Study key risks for the global economy for 2022 and beyond were published by experts from the Swiss non-governmental organization World Economic Forum (WEF). After polling more than 12,000 respondents from 124 countries, economists have identified problems in the near future and those that will have to be feared in the future. All of them are related to the consequences of the coronavirus pandemic.
“Vaccination and accelerated digitization have put some countries on the path to a rapid post-crisis recovery, while others are still raking in the worst of the consequences. Half of the world’s population is still not vaccinated,” WEF experts state.
As a result, in their opinion, the world will be divided into “winners” and “losers” – the economic recovery will be so uneven.
Фото: Getty Images/NurPhoto
Higher prevalence of COVID-19 in countries with low vaccination rates will affect labor availability, labor productivity, disrupt supply chains and dampen consumption. And “vaccinated” countries – mostly developed economies – can significantly reduce risky investments in “unvaccinated” states.
Inflation, shortage of raw materials and supply crisis
Lockdowns in key countries, primarily in China, actually stopped production, which has never happened in world economic history, points out Veronika Kholina, head of the department of regional economics and geography of the Faculty of Economics of the Peoples’ Friendship University of Russia. The stoppage of production led to an increase in unemployment, including in the small business sector (in countries with a tradition of a market economy – almost half of GDP), an increase in social benefits, debt burden, and, of course, inflation.
As highlighted in the WEF report, uneven way out of the crisis promises new problems – and the rise in the cost of energy resources, and a new round of the logistics crisis, and a surge in inflation.
“The situation with the spread of new strains of COVID-19 can be very unpredictable: from investment and construction freezes to new lockdowns. In addition, the big energy crisis in China and Europe has pushed up the cost of gas and electricity. If the rise in prices continues, then this is fraught with a further rise in prices and an aggravation of the shortage of raw materials, ”says Sergey Kolesnikov, co-owner and managing partner of TechnoNIKOL.
Photo: TASS / Zuma
«Since the beginning of 2020, commodity prices have risen by almost 30% and continue to rise, including due to growing tensions between Europe and Russia, China, energy shortages and disruptions in supply chains”, — WEF analysts note. According to their forecasts, inflation in the world will continue to grow: it will be spurred by logistical failures, combined with a resurgent consumer demand and goods that have already risen in price.
For example, in the United States, inflation has reached record highs over the past 40 years.
“Considering that this is the largest economy in the world, and the dollar is an international reserve currency, if inflation continues to rise in the United States, a domino effect will work: it will accelerate in other countries as well,” explains economist Ekaterina Fedyukovich. – In Russia, such an impact became noticeable last year. The growth of inflation was provoked not only by internal factors, but also by prices on world markets, which, in turn, are caused by distortions in supply and demand, as well as the value of the currency.”
Acceleration of inflation will force the central banks of developed and developing countries to raise interest rates, for which the economy will be completely unprepared. There will be a threat of defaults on debts.
High prices and expensive debt will primarily affect low-income households, small and medium enterprises that are still trying to avoid bankruptcy. Government debt will also rise sharply. This is despite the fact that a large-scale increase in government spending during the pandemic has already turned into a sharp increase in global debt.
Photo: TASS / Zuma
Economists have previously warned that the “debt bomb” could explode after the pandemic. Almost half of the increase in the debt burden for the pandemic came from advanced economies. The leaders are the USA, Great Britain, Eurozone, Japan and South Korea.
“It is completely unclear how the global economy will reduce such an exorbitant amount of borrowing in the future without significant adverse consequences for economic activity,” analysts at the Institute of International Finance (IIF) said earlier in their report. Among emerging markets, IIF experts are concerned about Lebanon, China, Malaysia and Turkey – there is the largest increase in the debt of the non-financial sector. Even at record low rates, declining government revenues have made servicing loans “much more burdensome.”
“We are sitting on a bomb and we don’t know when it will explode,” emphasizes Emre Tiftik, a debt specialist at the Institute of International Finance. As soon as central banks start raising rates, the world will be covered by a wave of defaults – perhaps the most devastating of all that have been, the expert believes.
Livelihood crisis and migrants
Exorbitant debt and the rising cost of servicing it will make it increasingly difficult for many to cope with the economic impact of COVID-19 and finance social spending, the WEF warns. As a result, social stratification and income inequality will increase more and more.
The situation with employment will not add optimism either. According to the forecast of the International Labor Organization, the recovery of the number of jobs will be delayed until 2023. Young people, women and low-skilled personnel will be the first to suffer.
Фото: REUTERS/Sea Watch/Max Brugger
Rising income inequality could eventually provoke a “livelihood crisis”. According to the WEF, this is a real threat to 97 countries of the world, including 16 G20 economies. And the result will be a further increase in the number of refugees. Experts call forced economic migration one of the key risks over the next decade. All this is likely to lead to geopolitical conflicts and internal social tensions.
Finally, the economic impact of the pandemic could reverse efforts to combat climate change and delay the green transition for a long time.
“Despite the decline in greenhouse gas emissions during the pandemic, the problem of global warming is as acute as ever. Extreme weather events lead to water shortages, crop failures and, as a result, rising food prices and supply disruptions in the world. First of all, in the countries of Southeast Asia and Africa, which have practically no opportunities to adapt to new natural conditions, ”says Anastasia Kosheleva, head of Investing.com
Experts point out that environmental risks are likely to cause the most damage on a global scale over the next decade.