Re-globalization that ensures free supply of food grains and minerals should be the new world order

The report talks of global growth to slow from 3.5 per cent in 2022 to three per cent in 2023 and 2.9 per cent in 2024, well below the historical average (2000-2019) of 3.8 percent. The impact on advanced economies is higher due to their inflation moderation and policy tightening steps, growth is expected to slow from 2.6 per cent in 2022 to 1.5 per cent in 2024 and 1.4 per cent in 2024

The annual meetings of the IMF returned to Marrakech, Morocco, after 50 years (1973 being the last) last week. It was marked by the release of its World Economic Outlook October 2023, Global Financial Stability Report and Fiscal Monitor,

According to its outlook, the global recovery remains slow, with growing regional divergences and little margin for policy error. Monetary policy actions and tightening measures that were initiated by various central banks resulted in lowering inflation rate. The current monetary policy actions and frameworks are key at the current juncture to keep the inflation expectations anchored.

Global inflation, according to the report, will decline steadily from 8.7 per cent in 2022 to 6.9 per cent in 2023 and 5.8 per cent in 2024. However most of the central banks are continuing their policy of strict vigil on headline inflation with a pause or hike in reference rates with the objective to win their commitment to bring down headline inflation to their target level.

In this fight against inflation, the GDP growth has been suffering from the high interest rates in the inflation versus growth tradeoff. Correspondingly the report talks of global growth to slow from 3.5 per cent in 2022 to three per cent in 2023 and 2.9 per cent in 2024, well below the historical average (2000-2019) of 3.8 percent. The impact on advanced economies is higher due to their inflation moderation and policy tightening steps, growth is expected to slow from 2.6 per cent in 2022 to 1.5 per cent in 2024 and 1.4 per cent in 2024. This will have a bigger impact on global demand on world trade. In contrast, the emerging markets and developing economies are projected to have a modest decline in growth from 4.1 per cent in 2022 to 4 per cent in both 2023 and 2024.

The US economy has been able to perform better with 2.6 per cent in 2022 to 1.5 per cent and 1.4 per cent in 2023 and 2024 whereas the Euro is showing a large decline in growth from 3.3 per cent to 0.7 and 1.2 per cent in 2023 and 2024. The United Kingdom is also suffering from 4.1 per cent in 2022 to 0.5 per cent in 2023 and 0.6 per cent in 2024.

There has been concern about China's economy slowing from five per cent in 2023 to 4.2 per cent in 2024. China's real estate economy has been hit with high debt and some of its leading players are having problems like servicing debt with the risk of default.

The one bright spot is that the report has forecast India’s GDP at 6.3 per cent for 2023 and 6.3 per cent for 2024. There has been revision up from 6.1 per cent. RBI and Government both are expecting GDP growth for 2024-24 at 6.5 percent. However India needs to take further policy reforms on land, labour, ease of doing business which is already improved with further focus on private investment, private savings and creating more fiscal space by reducing public debt to enhance the GDP growth prospects.

However, there are further risks to growth as the Russia-Ukraine war is still continuing and fresh hostilities between Israel and Hamas have added to the tension. Both will impact the world economy. These troubles had an impact on supply of essential food items. Moreover this may lead to fragmentation risks due to concentrated production, hard-to-place consumption and their critical role for technologies.

The recent policy of restricting oil production has resulted in an immediate price hike and affected oil importing countries. Hence according to the report, fragmented minerals markets would make the energy transition more costly and thereby reduce investment in electric vehicles by one third. It suggests a ‘Green Corridor Agreement’ to cement international flow of critical minerals. It has suggested a similar agreement for essential food commodities. These can safeguard the global goals of averting climate change and food security.

Global Financial Stability Report, October 2023 talks about inflation and its impact on financial stability and resilience. With advanced countries continuing to focus on inflation control and few developing countries having established more control on inflation, has eased the financial conditions since April 2023.

The timely action taken by the US government and US Fed and European authorities in the light of a few bank failures has resulted in greater trust and confidence in financial markets. While acute stress in the global banking system has subsided, a weak tail of banks remains in some countries. The report concludes that risks to global growth are therefore skewed to the downside.

Fiscal Monitor released the latest talks of Climate CrossRoads: Fiscal Policies in a Warming World. It says that the world is faced with the trilemma of achievement of climate goals, debt sustainability and political feasibility. Both the government and private sector investments are needed to invest in alternative renewable energy to mitigate climate change and global warming. Every country has to find more sources of revenue to meet these enhanced requirements of investments. Carbon pricing is a necessary instrument and should be a part of the policy mix.

However it should be supported by measures to protect vulnerable households, workers and communities during the green transition, by robust fiscal transfers. Since global warming is a challenge for the entire world, there should be global coordination to push forward pragmatic global carbon pricing, enhance external financial support and facilitate knowledge transfers of established low carbon technologies to support climate action and efforts for developing economies, as per the report.

In conclusion, there are different challenges facing the world which calls for coordinated action and mutual help. The geo political situation should improve and the ongoing war and disturbances should be stopped to bring global peace and restore the economic, financial order. The hardships faced by less developed and developing countries due to various uncertainties, needs to be lessened by help by advanced countries, multinational and multilateral development financial institutions on soft terms. There should be an effort towards re-globalisation and free supply of food grains and minerals and other essentials to ease the supply shock and avoid commodities price risks.

Financial stability and economic stability are the most essential roles that have to be played by both the government and regulators.

(The author is former Chairman & Managing Director of Indian Overseas Bank)