Why Are Leaders Concerned about the Global Economy?
This week's statements at the World Economic Forum in Davos, Switzerland, echo concerns about the state of the global economy.
Kristalina Georgieva, the International Monetary Fund’s (IMF) Managing Director, said ahead of the forum that the global economy is facing its “biggest test since the Second World War.” During a panel, Georgieva also doubted the chances of a global recession but didn’t rule out the possibility.
The IMF has downgraded its global economic growth outlook to 3.6% in 2022, down from 6.1% in 2021. Why are global leaders concerned about the economy?
- The Russia-Ukraine war. Russian blockades at Ukrainian ports, as well as sanctions imposed against Russia, are increasing food and energy prices. Countries that rely on food and energy imports from Russia and Ukraine are particularly affected. Ursula von der Leyen, European Commission President, has also accused Russia of hoarding food exports to drive global prices and leverage political support. Many developing countries rely on Russia for wheat, barley, sunflower oil, and fertilizers.
- COVID-19. Global economies and supply chains are still recovering from the pandemic. China’s zero-COVID policy has significantly impacted the country’s economy, which is the world’s second-largest. Industrial and consumer spending in China has reached the lowest levels since the start of the pandemic and is unlikely to recover quickly.
- Climate change. According to the Swiss Re Institute, climate change could reduce the global economy by 10% of its total value by 2050. Climate change has a significant impact on agriculture and food security, human health, supply chains, migration, and a range of other factors affecting global economies.
- Inflation. Inflation rates are at their highest levels in major economies, like the US, Britain, and Europe, in decades. This has caused the US Federal Reserve and other central banks to raise interest rates.
While all of these factors are highly interconnected, leaders at the World Economic Forum break down the biggest crises into four categories: inflation rates, energy, food poverty, and climate change.
What’s the impact?
The IMF has cited global economic fragmentation as a key fallout from current circumstances, particularly Russia’s invasion of Ukraine.
To cope with price spikes, many countries have become more economically fragmented by restricting the trade of food, energy, and other resources. Georgieva said that this geoeconomic fragmentation has been on the rise for years, provoked not only by the Russia-Ukraine war but also by trade tensions, technology standards, security, and lack of trust in global economic systems.
According to a Bloomberg Economics simulation, reversing globalization would have a range of long-term effects. These include a poorer and less productive planet, significantly lower trade levels, higher inflation rates, socio-economic harms, and high GDP losses in many countries.
The economic impacts of the Russia-Ukraine war are also exacerbating food insecurity, especially in Africa, Asia, and the Middle East. According to new research by the Eurasia Group, the war could increase the world’s food-insecure population by 101 million by the end of 2022.
There’s also the impact of destabilization. Some have argued that Russia’s impact on global food and energy supplies is somewhat intentional, aiming to destabilize Europe by increasing migration from poorer countries most affected by resource insecurity. We’re already seeing the impacts of social unrest in some countries, like Iran, where food price spikes have caused protests across the country.
How Can OSINT Help?
Monitoring the geopolitical and social impacts of an economic crisis is crucial if governments want to stay ahead of national security threats and make more informed decisions.
Open-source intelligence (OSINT) is valuable for keeping up with rapidly evolving political and economic environments, providing real-time information from public sources like social media. It also helps gather insights that aren’t always accessible from classified sources. This includes:
- Understanding trends in public sentiment, especially in countries most affected by the economic impacts of climate change, inflation, and the Russia-Ukraine war.
- Accessing on-the-ground updates from crisis situations like natural disasters, public health crises, and conflicts.
- Improving visibility into the impacts of geoeconomic fragmentation, as well as informing solutions.
Reach out to Echosec Systems to learn more about OSINT and which data sources and software capabilities are relevant for your geopolitical monitoring use case.