“As the saying goes, if you cannot stand the heat, get out of the house. But then outside, you get into another kind of heat – global warming. So go back inside the house and strengthen it”
These are the two crises that grip much of the world today.
Inflation is at record high, at least in the past 20 years, in most parts of the world.
Uncertainty is prevalent, globally.
This uncertainty is unprecedented – at least since the Second World War.
The International Monetary Fund’s advice: “Prepare for the worst. Most of mankind can expect a recession.” What a grim prognosis.
“The global economy continues to face steep challenges, shaped by the lingering effects of three powerful forces: the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China,” warns the Fund.
Reviewing world developments this October, the Fund reports:
“The world is in a volatile period: economic, geopolitical, and ecological changes all impact the global outlook. Inflation has soared to multidecade highs, prompting rapid monetary policy tightening and squeezing household budgets, just as COVID-19-pandemic-related fiscal support is waning. Many low-income countries are facing deep fiscal difficulties.
“At the same time, Russia’s ongoing war in Ukraine and tensions elsewhere have raised the possibility of significant geopolitical disruption.
“Although the pandemic’s impact has moderated in most countries, its lingering waves continue to disrupt economic activity, especially in China.
“And intense heat waves and droughts across Europe and central and south Asia have provided a taste of a more inhospitable future blighted by global climate change.”
Relates the Fund: “Beyond monetary policy alone, China’s COVID-19 outbreaks and mobility restrictions as part of the authorities’ zero-COVID strategy and Russia’s invasion of Ukraine have also pulled down economic activity.
“China’s lockdowns have imposed sizable constraints domestically and gummed up already strained global supply chains.
“The war in Ukraine and deepening cuts to supplies of gas to Europe have amplified preexisting stresses in global commodity markets, driving natural gas prices higher once more.
“European economies – including the largest, Germany – are exposed to the impact of the gas supply cuts. Continued uncertainty over energy supplies has contributed to slower real economic activity in Europe, particularly in manufacturing, dampening consumer and, to a lesser extent, business confidence.”
Never in a generation has the IMF been so pessimistic in painting the world’s outlook.
IMF is the central bank of central banks. It should know its business. What it says can influence the flow of money and pace of economic activity in any part of the world.
“The global economy is in a broad-based slowdown,” the IMF declares, repeatedly, adding “our latest forecasts project global growth to remain unchanged in 2022 at 3.2 percent and to slow to 2.7 percent in 2023—0.2 percentage points lower than the July forecast—with a 25 percent probability that it could fall below 2 percent.
“More than a third of the global economy will contract this year or next.
“The three largest economies—the United States, the European Union, and China—will continue to stall. In short, the worst is yet to come, and for many people 2023 will feel like a recession.”
Prices of energy products are astronomically high.
Prices of food products have scaled heights unseen before. Already very high, interest rates are not yet at their desired highs—to control inflation.
And the threat of World War III is on many people’s worst fears.
Contends the IMF: “Russia’s invasion of Ukraine continues to powerfully destabilize the global economy. Beyond the escalating and senseless destruction of lives and livelihoods, it has led to a severe energy crisis in Europe that is sharply increasing costs of living and hampering economic activity.
“Gas prices in Europe have increased more than four-fold since 2021, with Russia cutting deliveries to less than 20 percent of their 2021 levels, raising the prospect of energy shortages over the next winter and beyond.
“More broadly, the conflict has also pushed up food prices on world markets, despite the recent easing after the Black Sea grain deal, causing serious hardship for low-income households world- wide, and especially so in low-income countries.”
Meanwhile, for countries like the Philippines, which the IMF classifies as among emerging markets, “the strength of the dollar is causing acute challenges, tightening financial conditions, and increasing the cost of imported goods.
“The dollar is now at its highest level since the early 2000s. So far, this appreciation appears mostly driven by fundamental forces, such as the tightening of monetary policy in the United States and the energy crisis.
“The appropriate response in most countries is to calibrate monetary policy to maintain price stability, while letting exchange rates adjust, conserving valuable foreign exchange reserves for when financial conditions really worsen.”
Predicts the IMF: “As the global economy is headed for stormy waters, financial turmoil may well erupt, prompting investors to seek the protection of safe-haven investments, such as US Treasuries, and pushing the dollar even higher.”
What can the Philippines and similarly situated countries economically, do?
“Batten down the hatches,” advises the Fund.
Borrow pre-emptively. Control capital flows. Conserve dollars. Restructure debts in orderly fashion. There is very little time to act.
Says the IMF: “Eligible countries with sound policies should urgently consider improving their liquidity buffers by requesting access to precautionary instruments from the Fund.
“Looking ahead, countries should also aim to minimize the impact of future financial turmoil through a combination of preemptive macroprudential and capital flow measures, where appropriate, in line with our Integrated Policy Framework.
“Too many low-income countries are in or close to debt distress. Progress toward orderly debt restructurings through the Group of Twenty’s Common Framework for the most affected is urgently needed to avert a wave of sovereign debt crisis. Time may soon be running out.”
Finally, says the Fund, “the energy and food crises, coupled with extreme summer temperatures, starkly remind us of what an uncontrolled climate transition would look like.
“Much action is needed to implement climate policies that will ward off catastrophic climate change.”
As the saying goes, if you cannot stand the heat, get out of the house. But then outside, you get into another kind of heat – global warming. So go back inside the house and strengthen it.
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