Economics, geopolitics and impact on the G20 – Analysis – Eurasia Review
By Gautam Chikermane
The global economy is slowing, risks are rising, and a new cloud of uncertainty is weighing heavily on economic policymakers in all regions. These are the predictions and conclusions of the July 2022 World Economic Outlook of the International Monetary Fund (IMF), the meaning of which was known to all lucid minds. There are three points to consider here. First, the magnitude of the downturn and the place of individual nations in it. Second, the risks ahead. And third, the narratives being cobbled together in a never-before-seen public relations exercise that betrays the first principles, the definitions, the very essence of economics. It all converges and tests the intellect leadership of the Indian Presidency of the Group of 20 (G20).
This essay examines the 19 countries that make up the G20 and control 80% of global GDP, 75% of international trade, and hold three-fifths of the world’s population. According to the IMF, the five fastest growing economies in 2022 will be Saudi Arabia, India, Indonesia, Argentina and Turkey. Of these, Saudi Arabia and India lead by huge margins.
Among major economies, India’s growth rate is more than 4 percentage points compared to China and the United Kingdom (UK), more than 5 percentage points compared to the United States (United States), Japan and France, and by more than 6 percentage points compared to Germany. Moreover, even if the global economy slows down, not all countries experience a downgrade; eight of them – Saudi Arabia, Argentina, Mexico, South Africa, Italy, Brazil, Turkey, Russia – see a positive change in growth projections (see table below).
|G20 GROWTH PROJECTIONS*|
|Country||GDP growth projections (calendar 2022)||Change from April 2022 projections|
|* International Monetary Fund|
Call it a policy mix or the advantage of a lower base, the fact is that India, as the world’s sixth-largest economy, is big enough to command political scrutiny. A growth of $236 billion in absolute terms is greater than the GDP of Iran, Greece or Ukraine. But it’s still not as important as China or the United States to be an engine of global growth.
To put India’s absolute growth in perspective, a 7.4% rise on a GDP of US$3.2 trillion is less than half the 3.3% growth that China can deliver on its US$17.7 trillion GDP or the 2.3% growth the US can create on its US$23 trillion economy.
The other point of interest is the magnitude of the downward revision to growth in the G20 countries. The six largest economies have the six largest downgrades: the United States by 1.4%, China by 1.1%, Germany by 0.9%, India by 0.8 %, Japan by 0.7%, France by 0.6% and the United Kingdom by 0.5%.
On the other hand, Russia, which is worth US$1.7 trillion, is currently facing the toughest economic sanctions and is seeing a 2.5% upward revision for a 6% GDP contraction, while Turkey, which weighs 815 billion US dollars, is under pressure on inflation. and the monetary fronts saw an upward revision from 1.3% to 4%. As counter-intuitive as they may seem, the numbers are there for everyone to see.
According to the IMF, six major risks could have an impact on growth. First, the Russian-Ukrainian conflict and the resulting impact on energy prices. Already, deliveries of Russian gas to Europe are down 40%. A drop in supply without a commensurate drop in demand means a rise in prices that will feed through to economies through inflation.
Second, rising energy prices will be fueled by food shortages, amplifying inflation. If it continues for a long time, there is an imminent danger of stagflation, that is, slowing growth or recession combined with inflation. Labor demand for higher wages will focus policy attention on the politics of stability rather than the economics of growth.
Third, to control inflation by raising interest rates, policymakers face the danger of creating disinflation. The Outlook cautions policymakers against misjudging the appropriate policy stance and warns that “the coming disinflation adjustment could be more disruptive than currently expected.”
Fourth, the possibility of triggering debt distress due to tighter financial conditions in emerging markets and developing economies. Driven by central banks in advanced economies, interest rate hikes will skyrocket around the world. Apart from increasing the cost of doing business, this could “put pressure on international reserves and cause depreciation against the dollar, inducing balance sheet valuation losses among economies with net liabilities denominated in dollars.”
Five, the slowdown in China. The IMF is concerned that Beijing’s zero COVID strategy and resulting lockdowns, combined with larger-scale outbreaks of more contagious viruses, could impact growth. Add to that the “delayed price and balance sheet adjustments in the real estate sector,” which could lead to a slowdown that “would have strong global spillovers.”
And six, further fragmentation of the global economy following the Russian-Ukrainian conflict that will divide the world into “geopolitical blocs with distinct technological standards, cross-border payment systems and reserve currencies.”
The two consecutive quarters of negative growth in the United States are visible to all, but economists refuse to call a recession a recession – the most powerful country in the world is getting away with it with the support of media that calls itself “liberal while belying basic definitions. China slows down, and abruptly, but again, the headlines miss the event – Beijing is blessed with the same woke far-left intellectuals fueled by corporations with business interests in the world’s second-largest economy.
In contrast, even though India remains the world’s second fastest growing economy among the G20 countries, the knives are out, cutting and slicing the data to get what their handles demand – the decline in growth of India is due to a policy of “division”. These stories come at a time when the IMF notes that “for India, the revision mainly reflects less favorable external conditions and more rapid policy tightening”. If not for the tragic display of professional betrayal, such a statement would have been hilarious.
In the future, the joke will be on us if we, the three-fifths of the world’s population who make up the G20, start believing these stories. Fortunately, even though narratives enter the field of economics through the backdoor of politics, the field is gaining ground and expanding the front door of the field. by Robert J. Shiller Narrative economy (Princeton University Press, 2019), for example, offers new perspectives on the subject.
Between the data, the risks and the stories lies a future as disruptive as it is uncertain. As Outlook notes, “a plausible alternative scenario in which risks materialize, inflation rises further and global growth declines to around 2.6% and 2.0% in 2022 and 2023, respectively, would put growth in the 10% lower in results since 1970.” This is where we must rely on a responsible policy to balance risks and generate growth.