By Anjan Roy Economic forecasting is always hazardous. It is more so in the current scenario. There are always any number of uncertainties about the future. But currently these are multifarious. No one really knows, including the dramatis personae, what will happen in the next week, let alone in course of the coming year. Take a sample. It is no way possible to divine how the Gaza War will shape. Will it erupt more generally over the Middle East theatre or the present war will lead finally to a permanent solution. Similarly, uncertain is the drift in Ukraine war. Russia has suddenly stepped up its air raid on Ukraine. Maybe, this was prompted by the devastating attack on naval installations in Crimea by Ukraine which sank one of the warships of Russia. At the same time, the ground war is going nowhere and neither Russia nor Ukraine is making any significant progress. The Chinese economy is showing clear signs of deceleration. The economy is in the throes of a crisis over the extensive stalling of its housing and real estates sector. There is fear that the massive systemically important housing finance companies would default. As if to add to the Chinese worries, the fear over Taiwan is mounting. China is stepping up its campaign and making every effort to influence the poll outcomes. Encouraged by the latest Russian successes in bamboozling Ukraine, China might also play its threats to Taiwan, involving American responses and involvement. Any of these black swan events can trigger forces that could upset the current balance and pace of growth of the global economy. That is the prime worry for the central banks as well as the policy makers. The first victim of a wider war in the Middle East would be a consequent turmoil in the oil markets. In case, any of the major oil producers get sucked into the Israel-Hamas it will have a ripple effect on oil production and supplies. Disruptions in the oil production and supplies will jam up prices and influence overall price levels. In many ways a fresh upswing in inflation will be the most potent blow to the global economic prospect. Inflation has been rising, particularly, in the United States after almost a decade of stable and low prices. Many economists had spoken of inflation as a past worry and that low inflation age had dawned. American inflation was rising and the US Federal Reserve had started a rising rate cycle in the face of define inflation trends. Inflation in US had inched up to 5%plus and for a while it had touched 8%. Such levels of inflation were not seen since the end of war. Then, with rising rate cycles and some other factors, inflation began abating. So much so, that the Federal had initiated talks about reversing the rising cycle and start easing up a bit. Any inflation reversal at this point of time will mean the Federal Reserve could again start its inflation fight with a hike in interest rate. For some time now, the talk among economists had been whether with rising inflation and Fed’s anti-inflationary package, American can escape a recession. In fact, it is the recession word that is the most widely used word among economists now. Will the US be able to avoid a recession following the fight against inflation. It has been seen that monetary tightening cycles for anti-inflation purposes is invariable followed by a recession after a gap of fifteen to eighteen months. As such, the Federal Reserve had started tightening cycles, which is now seeing moderate inflation. But will a recession follow. A recession in American would invariably rip the prospects for the global economy and big to sell everybody would be affected in an interconnected world. Fortunately, so far, USA had avoided a recession and labour unemployment is even now at a very low level. Economists are trying to define how US had avoided recession and yet interest rates have been raised. The explanation being offered that the US might in the end avoid and hard landing with a recession on hand. The US would achieve a soft landing, which has not happened since post war. That would be a miracle in policy formulation and economic management. The second threat for the global economy is from China. Chinese economy is slowing down. Forget those days of sing along Chinese enemy growth of 8% and above. Now the Chinese economy is estimated to grow by less than 5%. Far worse, China had so far flourished and grown on an economic model which had factored constantly rising investment. Whenever the Chinese economy sagged, the authorities let loose a spate of large scale investment which then crated fresh demand for everything from steel to household goods. That model has seen the end of its run. It is no longer possible to kick up investment into capacity creation as huge capacities have already been created over the years. There are new towns on fresh areas which remain unoccupied. Entire housing colonies have remained deserted and often the promoter companies are in deep debts which they are no longer able to service. To add to a worries, the Chinese Communist Party (CCP) under Xi Jinping is reassuring party authority over everything, including now the corporates. Entrepreneurs have been threatened an in many cases chief executives of key Chinese companies have simply disappeared. These official moves have throttled the entrepreneurship spirit in China. The moves have worst affect the Chinese technology sector where some of the key promoters have been cut down and their initiatives stalled. What we see now, is that both the economic super-powers are facing some serious structural problems which are not going to go away easily. Their combined economic impact mean a lot for the global economy and the prospects of growth in 2024 and beyond. Any of these black swan events might set in reactions in the financial markets and result in large scale flow of funds. Uncertainty in US would invariably result in withdrawal of funds from the emerging and developing economies. Such capital flights could have multiplier effects in the developing economies through foreign exchange markets. End result would be economic melt-down. Hopefully, such fear mongering should be merely kite flying. These would never come to pass. But then, it is better to be informed of the challenges and threats than be complacent and smug. After all, laxity resulted in the worsening and compounding of the woes of the pandemic. Let us think hard how the emerging economies can be ring fenced from the worst slippages in the two economic giants. (IPA

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