Certainly, uncertainty has declined – on world economy

Source– The post is based on the article “Certainly, uncertainty has declined” published in The Business Standard on 6th February 2023.

Syllabus: GS3- Economy

Relevance– Global economic prospects and impact on India

News– Over the past year, global macroeconomic stability has improved, which sets the stage for good growth from 2024.

What was the situation of the world economy one year ago?

The World economy was in trouble. The foundations of price stability were under question and central banks globally raised rates.

Sharp global tightening triggered difficulties for the world economy.

Russia attacked Ukraine. China followed the policy of zero Covid through repression.

What are the prospects of the global economy in current times and near future?

Inflation targeting regime of developed countries has worked well. Monetary tightening caused some trouble. Higher interest rates led to difficulties of cryptocurrencies, start-ups in India, and the price corrections in tech giants like Amazon and Google.

There is restoration of macroeconomic stability in the global economy. Supply chains have significantly corrected, assisted by China’s return to production.

The workforce in developed markets is getting back to work. By 2024, we can expect normal values of inflation, interest rates, and asset prices.

Russia’s invasion of Ukraine looked dangerous initially. The Russian success would have led to other wars, like Chinese attacks on Taiwan.

The radical uncertainty has subsided as the weakness of the Russian state has been revealed.  Russia’s failure in Ukraine has improved deterrence against future invasions by big powers.

President Xi Jinping has stepped back from aggressive behaviour and stepped away from the lockdowns that attempted zero covid. China’s vaccine nationalism has harmed the legitimacy of the regime.

Things are very difficult in China right now, but there are signs of restoration of normalcy. The Xi regime would continue to play the nationalism card in overcoming domestic unpopularity. But, the experience of Russia in Ukraine will shape its behaviour.

These three factors have helped calm financial markets. The volatility today is lower than last year. This restoration of macroeconomic stability can create conditions for a period of sustained growth starting from 2024.

What is the way forward for businesses in India?

It is more feasible to make business plans because things are looking stable now.

India has a workforce that is more tech-savvy. This is a good time for business building.