Another war dents global economy

Tapiwa Gomo

THE world has experienced multiple shocks in the past 10 turbulent years, each with differing effects.

Although world leaders have responded to the shocks in diverse ways, there has not been a comprehensive strategic approach or a well-thought-out plan to deal with them. Let’s take a glance at recent historical moments and the various shocks the world has experienced, each of which has been handled differently by world leaders.

Donald Trump took office as the 45th president of the United States (US) on January 20, 2017. Being the leader of one of the most powerful countries in the world, he introduced protectionist policies which made it difficult for other countries to conduct business with the US-based businesses on free market principles.

He declared to the world that he had adopted these policies to safeguard US markets, support domestic businesses and attract back investors who had fled the country in quest of more affordable labour.

In response, some of the countries trading with the US found new trading partners to take the place of the US markets. This, along with Brexit in the United Kingdom (UK), signalled or rather intensified the fragmentation of world markets, a phenomenon commonly referred to as deglobalisation.

This involves some global units — usually nation-States — becoming less integrated and dependent on one another. Deglobalisation is simply when economic trade and investment between or among countries decline.

The COVID-19 pandemic severely impacted livelihoods, and took a huge toll on human life and international trade, which caused the world economy to nearly collapse.

According to estimates, the pandemic cost the world economy more than US$12,5 trillion, or roughly 10% of total global gross domestic product. The impact was far harsher and deeper.

In fact, the disease’s impact is still being felt by millions of small businesses and low-income families, mainly because their trading patterns and means of subsistence were closely entwined with those of the global economies.

When the world thought it was time to rise out of the lockdowns and resuscitate economies and livelihoods, the war in Ukraine ignited, putting a dumper on all efforts for economic recovery.

Even before the COVID-19 pandemic, there was growing anguish over how the US and its Western allies were handling global affairs, mainly the haphazard imposition of sanctions on countries which did not conform to their dictates.

As the world prepared to emerge from COVID-19 pandemic lockdowns and revive its economies and livelihoods, the war in Ukraine intensified, severely hindering any attempts at economic recuperation.

The need to find alternate international trading partners and currency systems was sufficiently justified by the way the Ukraine war was handled, particularly the imposition of additional sanctions on Russia, one of the world’ major suppliers of energy and fertilisers.

Food shortages and inflation have been made worse by the war’s impact on unstable and high commodity and energy prices, which have been felt in many parts of the world.

While some countries have attempted to manage the effects of the pipeline disruptions brought on by the conflict in Ukraine, issues to do with food supply and commodity prices have persisted due to the unpredictability of the conflict’s length and intensity as well as possible export restrictions on nations which export food.

Discussions about the BRICS, an emerging economic and geopolitical bloc that consists of Brazil, Russia, India China and South Africa, dominated the time between then and the recent escalation of hostilities in the Middle East.

Most people were pinning their hopes for an alternative global trading and currency system on this bloc.

When that was smoothly in the pipeline, global attention shifted to the Middle East where an escalation of another war took place on October 7 and is threatening to once again disrupt economic recovery.

For several reasons, the conflict between Palestine and Israel has the potential to have a significant negative economic impact. If more countries decide to join, it can seriously damage the global economy and bring it dangerously close to a major recession.

This is contingent upon the responses of both Western and Middle Eastern countries on how this situation must be resolved.

The world is in for a protracted conflict that could split the globe apart if it adopts the same Russia-Ukraine strategy.

Second, given that the war in Ukraine has caused prices of everything to rise, the world cannot afford to see another protracted conflict escalate in one of the main oil and energy-supplying regions.

A similar conflict involving several Middle East countries in 1973 led to an oil embargo which caused developed economies to stagnate.

Because it was undergoing a process of reconfiguration when it was hit by these shocks, the world economy is still extremely fragile.

The world will regress even further if the Middle East crisis persists, and this could lead to further price increases for necessities, therefore destitution and poverty.

So much for globalisation when poor countries should be working on producing for themselves rather than depending on global supplies.

  • Tapiwa Gomo is a development consultant based in Pretoria, South Africa. He writes here in his personal capacity.

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