Threats of recession are hardly new. With the Covid-19 pandemic dominating the world’s economic policies for the better part of two years, a global economic slowdown has always been on the charts. However, the damage caused by the pandemic could have been avoided if the global supply chain had been replenished in time. It doesn’t seem like it. Having said that, the risks of an outright recession were still low. Now, though, the war in Ukraine is beginning to have devastating effects on leading economies around the world. Energy prices are skyrocketing, and inflation seems to have spiraled out of governments’ control. The threat of a food security crisis for developing and poor countries is also on the horizon.
Then again, more than 8,000 sanctions are ruining the West more than they are hurting Russia. Sanctions against Russia are not new. After the annexation of Crimea in 2014, Russia under the leadership of Vladimir Putin made a concerted effort to make its economy self-reliant and independent from the West. The war in Ukraine was hardly a sudden event either. It has been years in the making, and was allowed to go ahead only after Putin became convinced that his country could withstand the onslaught of an economic war that would later be waged against Russia.
Take this for example: the International Monetary Fund’s ‘World Economic Outlook’ report recently found that Russia’s economy is doing better than expected despite being hit by a mountain of sanctions. As a result, it lowered the growth forecasts for almost every country, but upgraded Russia’s economic forecast. In April, the IMF predicted that the Russian economy would shrink by 8.5 percent. Now, that figure has seen an impressive 2.5 percent improvement, resulting in a revised rate of contraction in Russia of 6 percent. In the coming months, the figures could improve even further if global energy prices fail to ease – filling Russian coffers despite a possible loss of Western markets for Russian oil.
West’s Race to Recession
In the West, it’s really a race to see who enters a recession first. At the moment, the US seems to be leading the way, but Europe is not far behind. The world’s largest economy is now ‘technically’ in recession, even though Joe Biden and his administration are reluctant to admit it. In 2022 alone, the United States economy has witnessed two consecutive quarters of contraction. The US economy contracted by 1.6% in terms of GDP in the first quarter. In numbers released Thursday, the United States economy shrank another 0.9 percent between April and June.
Meanwhile, Europe has been reeling from Russia’s erratic natural gas supply for the past few months. First, gas supplies to Europe through Nord Stream 1 were reduced to 40 percent of the pipeline’s total capacity. Then, Moscow cut off supplies completely for about ten days in July, before restoring them. Europe breathed a sigh of relief. Their joy was short-lived, as Moscow once again cut supply through the pipeline to 20 percent of its total capacity.
Now, Germany is facing an energy crisis, while the rest of the eurozone is scrambling to replenish its natural gas reserves. Without such reserves, Europe would open up like an uncontrollable spiral in the winter months. In any case, the coming months are going to have a big impact on Europe’s economy. Eurozone inflation has now risen to a record 8.9 percent, while economic growth was recorded at 0.7 percent in the second quarter. How long will Europe slide towards negative growth?
Hence, inflation is rising, consumer purchasing power is shrinking and industries are on the brink of major output losses as the energy crisis threatens the bloc’s economic stability. If the energy crisis becomes too severe to bear, European countries will first cut supply to industry. As a result, the economy will suffer first.
According to a Bloomberg survey, Europe faces a 55 percent risk of recession over the next year. The same survey predicted a nearly 40 percent chance of the U.S. slipping into a recession over the next year. China, Taiwan and Australia have a 20 percent chance of slipping into recession, while New Zealand faces a 33 percent risk of economic collapse.
India’s economy is strong in tough times.
The same Bloomberg survey has made a really positive observation regarding the economic environment in India. There is zero percent chance of India slipping into recession anytime soon. Researchers in a Bloomberg survey noted that despite the rupee breaking the 80-per-dollar mark against the US dollar, the chances of a recession in India are quite low.
To be sure, the IMF has cut India’s economic growth forecast for the current fiscal year to 7.4 percent from 8.2 percent in April. However, India will remain one of the fastest growing key economies globally in 2022-23 as well as 2023-24.
Much has been said about India’s dream of a $5 trillion economy. Prime Minister Narendra Modi himself has been vocal about achieving this goal with the help of every Indian, and continues to strive for ‘Atmanir Bhar Bharat’. According to the IMF, the Indian economy is expected to grow to $4.7 trillion in 2024. This was the year that Prime Minister Modi marked India to achieve a $5 trillion economy. Clearly, India is fast approaching one of its most important goals in recent history. By 2026, meanwhile, the size of the Indian economy is expected to reach $5.1 trillion.
There is a stark and extraordinary difference between what the West is going through, and what India is facing. Economies around the world are shrinking. The names are big – US, EU and maybe even China. India, on the other hand, is steadily moving towards its goal of a $5 trillion economy. On one side is a sad story of decline and destruction and on the other side is one of hope, optimism and endless possibilities. The West now represents degeneration – moral, political, social and most importantly economic. India represents freshness, strength and moral righteousness, all combined to yield positive economic results.
The balance of power is shifting. The world is changing. A new order is coming, and the West will hardly be in a position of strength on the other side of it all.
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