Global Economic Instability

Sushil Kumar Rai, Professor and Head

Department of Media, Communication and Fine Arts

Manipal University Jaipur

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The Energy Transition Paradox. Source: CLG Global

Earlier, the global economy was a topic for finance ministers, business experts and central bank heads. But today, it is impacting the lives of millions of people and families across the world. Food, health and transport are expensive things to recover from the huge economic crisis that has made life tougher for many people. In many countries, these high-inflation tensions are a cause for alarm in day-to-day life.

In recent years, we lived with high inflation, lack of energy supplies, tensions in international trade and increasing debt. Both families and governments were thrown into a great deal of uncertainty. However, the effects of inflation are still being felt in many major economies after a peak. The middle classes are dipping into their savings to meet basic costs in wealthy nations while pulling back on spendings considered associated with luxuries. Even small price hikes, for families already spending almost all their income on necessities places pressure and they are driven into extreme poverty.

Central banks have increased interest rates in order to tame inflation. At the same time, however, this could also lead to new problems-even if it will probably establish a stabilisation of prices in medium term. So, here it can be seen that higher interest rates result in less business investment and a weaker housing market as well as more expensive debt repayment.

The energy crisis has also shown that how many nations are still dependent on fossil fuel markets and global supply chains. Increasing petroleum prices have raised transport and food production costs; in many developing countries government expenditures have aimed at compensating the increased general energy and electricity subsidies. The crisis also exposed the patchiness of clean energy transition around the world. Higher income countries can put more money into renewable energy and (energy saving) technology, whereas lower income ones tend to be stuck using fossil fuels because they just do not have the cash.

But governments today have a very difficult dilemma: How to provide affordable energy now and with it cheaper bills, while in future they must transition away from dirty fuels ever more [at first] becoming cleaner. This transition is not only challenging but also politically charged. Hence, while countries do require policies that sustain robust systems in the long term able to manage future shocks.

At the same time, the Russia–Ukraine war and escalating conflict between US, Israel versus Iran were also dominating events on Planet Earth which by October 2023 was primarily recession-bound. Due to, the disruption in energy, food grains and fertilizers supplies as a result of Russia-Ukraine conflict; oil & gas and wheat prices have increased significantly. Simultaneously, US, Iranian and Israeli tensions have also raised the potential for supply disruption risks to oil supplies as well as shipping routes in the Middle East thus fuelling higher global inflation through elevated crude cost prices. Such conflicts disrupt trade, investment and supply chains; they have thus to certain extent contributed to global economic slowdown.

This has resulted in increased uncertainty for businesses. But for many companies that are delaying investments, costs have risen. Companies that previously configured their supply chains to maximize efficiency are now reconfiguring them to minimize political and security risk. The process, known as diversification or de-risking in this context, is a permanent and structural characteristic of global trade.

The developing world does even worse, many of those countries are not using assets as collateral; because they have no liquidity left. Despite borrowing heavily over recent years to combat the ongoing effects of climate change in addition to maintaining their infrastructure and providing social safety-nets while responding to crisis, many impoverished nations are stuck in a vicious debt cycle. Such have also been worsened by the fact of increasing costs of living, because off exchange rate weakening inflation as well.

It is not only an economic problem but rather a political and social crisis. In between all these troubles exist a Paradigm Shift which the world confronts. Acting woman and men boldly, quickly is our only hope to avoid ever-wider gulfs between the most and least prosperous nations. The crisis is economic in nature, and the so-called "crisis" facing by different countries. As a result, government interventions without borders only can bandage at best and not cure the structural disabilities of either economy. But national government must also step in as a responsible caretaker to provide temporary relief for families while international cooperation over trade and energy supply is prioritised. One of the biggest challenges Governments face today is to think beyond the present and develop a robust structure that enables everyone in society and community, especially deprived people (BPL) to grow together for safeguarding prosperity into future generations.