How Recent Events Have Affected the World Economy
U.S. hegemony in the 1970s
The decline of US hegemony has been a recurring theme since the 1970s, when major economic downturns were viewed as the beginning of the end. But despite the collapse of hegemony, the United States remains the leading power in the capitalist world and remains a major player in the imperialist world system. Indeed, recent economic crises, triggered by the United States, may signal the beginning of major power shifts within the capitalist states.
In the 1970s, the United States lacked a grand strategy, and its global hegemony was threatened by a new, dynamic economy. The threat was posed by the rise of Japanese technology and German manufacturing. This argument continued in the literature of the next decade. In particular, the focus was on economics, productivity, and technological innovation. The United States, however, still possesses the ability to shape global markets.
Neoliberalism, which challenged notions of state-directed national development, was emerging in the 1980s in Western Europe and North America. It was a direct challenge to the ideas behind development economics, which were the source of economic policies for developing countries. Its impact was profound.
Moreover, Keohane questioned the assumption that states are rational egoists and that cooperation can only occur under hegemony. Keohane countered the neorealist claim that international cooperation cannot exist without hegemony. Keohane argued that after U.S. hegemony in the 1970s, cooperation between states did not decrease, even as hegemony diminished.
Growth of the global economy
After World War II, industrial nations began cooperating to create mass-produced goods and consumer cultures worldwide. This created the global market. Since then, the global economy has been driven by consumer culture and economic growth. Nevertheless, there are some problems associated with globalization. First of all, it can be difficult to regulate, because it is a complex system.
In the short run, the global economy could continue to grow. The World Economic Outlook (WEO) has outlined its outlook for the global economy over the next two years. While growth is projected to moderate from 5.7 percent in 2021 to 4.4% in 2022, the forecasts do not exclude downside risks. In particular, there are concerns surrounding the outlook for growth in the United States and China, the two largest economies in the world. The United States has a downward revision of 1.2 percentage points, while China has been hit by the removal of monetary accommodation and pandemic-induced disruptions in certain regions. Moreover, the outlook for global growth is still subject to high uncertainty, given the path of the pandemic and the evolution of financial conditions.
However, some experts believe that the future growth of the global economy will continue to be slower than the current rate. In the meantime, the US Federal Reserve is expected to increase interest rates to support the global economy. While the US is experiencing the worst downturn since the 1990s, other economies have shown signs of recovery. For example, China is the fastest-growing economy in the world. Meanwhile, India has the third fastest-growing economy in the world. The World Bank has also published a report that predicts that global economic growth will slow down in the coming decades.
Impact of COVID-19 pandemic
The COVID-19 pandemic has impacted the world economy in several ways. First of all, the virus has caused serious losses to emerging economies. These losses revealed pre-existing economic fragility and made those problems even worse. Second, the pandemic has resulted in long-term economic consequences for many households.
Despite this, the global economy has recovered. According to the International Monetary Fund (IMF), the global economy has slowed from its previous pace in early 2019 to less than half its previous growth in early 2021. However, recovery has been uneven and is not consistent among all countries. The IMF warns that vaccine access will be one of the “fault lines” in the economic recovery.
Among major risks facing the global economy, COVID-19 ranks as the top threat to domestic growth. However, supply-chain challenges have briefly overtaken this risk. In a recent survey, senior executives were asked to select one of nine different scenarios for how the pandemic would affect their organizations. Among them, more respondents said they would choose scenarios in which the COVID-19 virus recurred but there were also scenarios in which the virus was controlled.
Overall, despite the COVID-19 pandemic, a majority of respondents believe the world economy will improve in the next six months. In addition, more than half of respondents believe that the global economy will continue to improve in the coming year. In contrast, the share of respondents who expect the situation to worsen has fallen by almost half since January.
Influence of war in Ukraine
The influence of the war in Ukraine on the world economy is complex and uncertain. While it is hard to pinpoint exactly, it is likely that the conflict has weighed on business confidence and asset prices. The situation has also raised concerns about capital outflows. As a result, the economic impact of the conflict will depend on the duration of the conflict and the extent of the devastation.
One of the most immediate impacts has been a sharp increase in prices for food and other commodities. The conflict in Ukraine has disrupted the production of critical components and goods for many industries. For example, the World Bank has said that the war has cut off key parts and halted production at many car factories. There have also been bottlenecks in the food, construction, petrochemical, and transport sectors.
The conflict will be felt most acutely in Ukraine and Russia, and will likely impact economic activity in neighboring eastern Europe. The European Union will also experience a shock to its trade, supply-chain, and energy supplies. However, the economic impact on other countries is more diffuse and uncertain.
The OECD says the conflict will disproportionately hit the poorest of the world’s population. In a few years, the World Food Programme estimates that the number of severely food-insecure people in Ukraine will double from pre-pandemic levels to 276 million. By 2022, this figure is likely to increase to 323 million. Moreover, the conflict is likely to exacerbate many existing pressures, including public debt vulnerabilities and scarring from a pandemic. As the conflict continues, wheat prices are expected to skyrocket, particularly in a region where 85 percent of wheat is imported.
Impact of lock-ins in China
The recent lock-ins in China have impacted the economy in a variety of ways. While the lockdown has caused a number of negative consequences, the overall economy remains relatively robust. According to Bank of America analysts, China’s GDP growth grew 4.8% in the first quarter and 0.4% in the second quarter. However, many regions of the country have experienced significant fiscal revenue slumps, including Shanghai and Jilin. In addition, the Russian invasion of Ukraine has exacerbated inflationary pressures.
The impact of lock-ins in China on the world economy is not clear yet. Chinese authorities have announced that they will continue to use economic aid measures in conjunction with the lock-ins, including bailouts for businesses and income assistance for unemployed people. This is a smart move, but it could still have an adverse impact on the world economy.
Lock-ins in China are creating uncertainty, and many people are watching closely. Lock-ins in China can impact many areas of the world economy, from energy consumption to environmental protection. The transportation sector accounts for more than 30% of the world’s energy consumption. It’s easy for the government to retaliate against private businesses, so it’s important to monitor the situation.
As a result, exports in China declined during the first quarter of the COVID-19 attack and the subsequent one-year lock-in. However, they recovered to previous levels by the end of August 2020. This is an unadjusted estimate of the effects of lock-ins on the world economy.
Influence of oil prices
The influence of oil prices on the world economy is more complex than it first appears. A persistently low price for oil will complicate the conduct of monetary policy, putting unanchored inflation expectations at risk. It can also ignite a wide range of dislocations, including corporate and sovereign defaults. This can feed back into already jittery financial markets. This makes monetary policy and global demand support efforts increasingly important.
One way in which oil prices affect the world economy is by reducing world demand for goods produced by oil-importing nations. As a result, the economic growth of these nations is curtailed, and the demand for oil in these nations becomes less. At the same time, the central banks of the major oil-exporting countries are not in a position to reduce interest rates significantly.
High oil prices also have a negative impact on the world’s poorest countries. While richer nations such as the United States, Japan, and Germany rely heavily on energy from the energy industry, many developing countries also depend on oil to fuel their economies. In fact, about half of the 133 poorest countries outside of China are net oil importers, which means that the increase in oil prices has a negative impact on their economies.
Historically, sharp oil price increases have caused countercyclical effects, causing the world economy to slow down. As a result, the recent rise in oil prices has also increased trade deficits and inflationary pressures in some countries. It has also exacerbated tensions over gasoline taxes. However, the impact has been far more severe for the oil-importing developing countries. The reason is simple: they use more energy than they produce, and their external financing is limited.