Brace for global recession as cost of living spikes

Tapiwa Gomo

BY Tapiwa Gomo
LEARNING is one way of getting ahead of preventable and yet unwelcome phenomena, but learning is not an easy aspect of life. That explains why humans tend to be caught unaware by crises that could have been easily predicted and prevented. In today’s world, individualism is worsening humanity’s ability to co-operate and collaborate on issues of mutual and global interest.

Let us look back a bit. It was in December 2019 that the coronavirus was identified in Wuhan, China. As we know it now, COVID-19 is a contagious disease caused by a virus, the severe acute respiratory syndrome coronavirus 2. During the outbreak in Wuhan, the virus was commonly referred to as the “Wuhan coronavirus” with the disease sometimes called the “Wuhan pneumonia”. The implications of this naming created the assumption that it was a Wuhan problem and the world needed not to worry because it was not its problem.

As the virus started spreading wildly and caused massive deaths in China, again other countries called it the China virus and blamed the country for not doing enough to contain it. Little had the world anticipated that the COVID-19 virus would wreak havoc and grind the whole world to a halt. Today 570 million COVID-19 cases and almost 6,4 million related deaths have been reported. More waves continue to be reported in China and other parts of the world today. The disease left most economies ailing, millions of people jobless and unable to feed themselves.

If the world had worked together and acted early enough, perhaps the virus could have been contained in Wuhan. The world did not need to go through such a tough two years. Did the world draw lessons from this experience? If it did, why then did the same world allow the war in Ukraine to happen?

We are at the same point again as a global recession looms at a time when economies were beginning to recover from the damage caused by COVID-19. Again we are asking the same question — did the world not see the implications of the war in Ukraine and anticipate its effects would be felt deep, far and wide just like the coronavirus?

When it started, it was seen as a war between Russia and Ukraine, with the North Atlantic Treaty Organisation (Nato) and European Union (EU) backing the latter while the former sustained its economy via scaling up trading with its Brics partners (Brazil, Russia, India, China and South Africa). Against logic and advice, the United States of America (USA) and EU continued to impose more sanctions on Russia even when it was clear that these moves would rebound and hit the EU.

When it started, it was seen as a war of political ego, pride and a show of mighty. At early stages, for Russia, Ukraine needed to be shown who is the big sibling. And for USA, Nato and EU — Russia needed to be reduced to size and to be shown who the big bosses were. There was no thinking beyond those egos. No one pulled back to reflect and see that the war was not necessary and that it was burning global wheat producers, energy pipelines and disrupting major supply chains.

It was just a matter of time before the ripple effects of the war were felt across the world. Early this month, the International Monetary Fund warned that the global economic outlook had “darkened significantly” in recent months, further warning of impending global recession within the next 12 months.

The world does not need to wait for the declaration of a global recession to see that the economic situation is not on the right course. The prices of essential commodities due to the war in Ukraine have spiked massively in the past few months, thus eroding incomes and aggravating the cost of living for millions of people across the world. Global inflation has also risen higher than expected with the prices in some countries at half a century high by June.

Some countries have already hiked interest rates to cushion their economies. Just last week, South Africa announced its largest interest rate hike in two decades to mitigate global inflation. The move was expected as the Reserve Bank of South Africa warned that the effects of the Ukraine war would impact the prices of essential supplies and fuel.

Europe is feeling it harder and is in huge panic. The euro has fallen below the US dollar for the first time in nearly two decades as a result of the war in Ukraine. Remember, sanctions were imposed to weaken Russia and yet that is now backfiring amid fears that Russia may turn off the taps of Europe’s supplies of energy, thus accelerating economic recession in the euro area.

A weak currency means imports will be more expensive, mainly for purchases in US dollars such as for oil and energy. The eurozone may see another rise in inflation from 8,6% in June. The high prices will be passed on to the end user or buyer, thus making the cost of living higher — a scenario that may trigger agitation among labour movements and general civil unrest.

  • Tapiwa Gomo is a development consultant based in Pretoria, South Africa.