“Permacrisis” was the Collins Dictionary's word of the year, perhaps unsurprisingly, as we lived through great upheavals
How will the world look like next year? Will we see a world more destabilised, with more conflicts, threats of war, increasing poverty and, more portentously, a return of a new and more deadly varient of Covid-19?
The world looked a bleak place in 2022. “Permacrisis” was the Collins Dictionary's word of the year, perhaps unsurprisingly, as we lived through great upheavals. Russia’s flagrant violation of Ukrainian sovereignity led to the largest military mobilisation in Europe since World War II. 2022 was supposed to be the year of recovery from the recurring pandemic shocks of Covid-19 and its associated variants. But geopolitical risks and economic instability turned optimism into despair. These two are, of course, interrelated and geopolitics is again the driving force behind global economy.
Millions of Ukrainians displaced, tens of thousands killed, critical infrastructure destroyed, and nuclear sabre-rattling by President Vladmir Putin made for a despririting spring. Summer was spent fighting inflation. Sky-rocketing fuel and food prices were a constant worry. Central Banks around the world faced their biggest macroecomic challenges in attempts to tame inflation. In late June, Sri Lanka faced its worst economic crisis since its independence in 1948, forcing its central bank to pay for Iranian oil with tea leaves in a throwback to barter agreements of centuries past. Europe was worried if it would be able to heat itself in the winter. In short, long held beliefs about territorial sovereignty, respect for the UN charter, nuclear war, and about Europe’s energy security were shaken.
The War in Ukraine
On the geopolitical front, a lot rests on how the war in Ukraine shapes up. I have long argued that Mr Putin’s adventures in Ukraine will leave Russia more vulnerable. Europe is today more consolidated than ever. Nato is poised to increase spending and will add two new members. Recent gains by Ukrainian forces were unthinkable when the war began. A Ukrianian victory is increasingly an outcome many analysts see within the realm of feasibility. Indeed, as the Ukrainian offensive continues with Russia having announced withdrawal from Kherson, there is talk of bringing Crimea within the range of the long-range Himars rockets.
However, a more likely scenario — and perhaps the more peaceful one — is a stalemate with Russia continuing to shell areas within Ukraine as it attempts to withdraw more forces, particularly those on the west bank of the Dnieper River. A stalemate will be a prryhic victory for Ukraine as Russia’s attacks on critical infrastructure will be sporadic but a constant. About nine million Ukrainians remain without electricity as shortages persist and blackouts have become a way of life.
The G-20 presidency provides a rare opportunity for India to take the lead in attempting a resolution of the war in Ukraine. President Volodymyr Zelenskyy’s recent tweet states that he counts on India’s participation for the implementation of a “peace formula” to end hostilities. It is not difficult to predict that geopolitical instability will continue to affect countries beyond Russia and Ukraine with tensions on the rise globally in key regions.
China’s struggles and potential distractions
China continues to struggle with Covid. China had a significant 2022 in many respects. Mr Xi Jinping was elected as the head of the Chinese Communist Party (CCP) for the third term. November brought mass protests against the strict zero-Covid policy of Mr Xi — these demonstrations were the most significant since the Tiananmen Square protests of 1989. China brutally culled the protests and then abruptly and chaotically announced the lifting of the zero-Covid policy. This perhaps led to the sharp spike in infections seen recently. China has stopped sharing data on daily cases but official numbers from the Zheijiang province, with a population of 64 million, indicate that daily infections in Zheijiang have crossed one million and will likely double to two million in a week.
China's struggles with Covid will temper GDP growth forecasts of 4.3 per cent that many analysts have predicted for 2023. Data from the Chinese Statistical Authority suggests further downturn in the economy in November, leading to fears that growth for 2022 — the Year of the Tiger in China — will fall below three per cent. As its embattled economy with a festering property crisis tries to recover, China is likely to scale up its rhetoric on Taiwan. At the CCP Congress in the October of 2022, Mr Xi had warned of “dangerous storms” ahead. Border skirmishes or even more with India and threats to Taiwan might figure in Mr Xi’s calculus if the Chinese economy stumbles further. The United States might further tighten its export controls aimed at China against the backdrop of increasing strategic competition. Recall that on October 7, the Biden Administration unveiled a set of export controls to deny China access to leading-edge semiconductors.
The next year will see a reorientation of alliances and pacts in an attempt to reduce dependence on politically volatile nations. Supply chain disruptions have been a mainstay of 2022. Ergo, a move towards reorganising supply chains will be a major global issue in 2023.
A recession arrives?
On the economic front, growth is likely to slow worldwide given the persistent inflation over the past one year. In early October, I had warned of a looming global recession (Deccan Chronicle, Oct. 9, 2022). December has been unusually bad for the stock market. Markets globally have seen negative indices with the percentage change in December at -6.3 for S&P 500, -5.2 for BSE Sensex, and -3.4 for the DAX Index.
The International Monetary Fund predicts global GDP growth in 2023 would be the slowest of the last two decades barring the 2008 financial crisis and the intial Covid-19 shock of April 2020. Major economies, particularly those in Europe will go into recession as central banks raise interest rates to stifle inflation. America’s recession is predicted to be milder with a soft landing expected. A further strenghtening of the dollar by the Federal Reserve is bound to hurt poorer developing nations the most. Europe will struggle as energy security issues remain unaddressed.
By April 2023, India is likely to surpass China as the most populous nation in the world with China’s population projected to decrease by 31.4 million, or around 2.2 per cent, between 2019 and 2050. We need a sustained growth rate of close to nine per cent for the next decade to rise to the status of an upperAnchor middle-income economy.
The year 2023 will bring with it numerous geopolitical, economic, and security challenges. It remains to be seen whether these challenges will lead to a more peaceful world order or throw the world into a permanent state of conflict or “permacrises”. Wishing you a very happy 2023.