Global economy heading towards recession
After struggling through the covid-19 pandemic, the global economy is heading towards a recession. Covid-19 destroyed the order of the world. Right from our social lives to the economic growth of the world. The pandemic resulted in life losses and hampered the economic development of all the countries.
According to a statistica report, approximately 3.4% loss in the Global GDP was expected. To put this more clearly, the estimate of the global GDP in 2020 was 84.54 US Dollars. That means the loss would be approximately 2.87 trillion dollars if the Global GDP dropped by 3.4%. This was the harm done by the global pandemic to the world.
But the world is recovering from all the damage caused by the pandemic. Although the growth was uneven among the country, the approximate acceleration in global growth was 5.6% in 2021. With different collaborative efforts, the world was recovering from this pandemic. But, different adverse scenarios like wars between nations, increases in interest rates, turbulence in the global supply chain, and other reasons are an indication that the world is again heading towards a recession.
Hence Let us discuss the three major reasons for this global crisis:
High Inflation:
Due to Covid-19, prices were already higher than past. But, two vital incidents in the world economy made things worse. First is the Russia-Ukraine war. Second, the re-lockdown in China led to disruption in the global supply chain. With the rise in oil prices and sanctions on Russia and different countries, there is a huge rise in inflation. The global growth is estimated to drop to 3.3% from the 5.6% recorded last year. By this September, inflation would be at a 30-year high.
The rise in Interest Rates:
Because high interest rates on the economy inflation was rising, it was expected that the interest rates would go up. Reserve bank of India increased it by 40 basis points, and US Federal Reserved hiked it by 50 basis points. But, a rise in interest rates also means loans, disposable income, less competitive markets, and other adverse effects. The increase in the interest rates, along with the adverse conditions like the Russia-Ukraine war and re-lockdown in China, has created a high risk of slowing down the global economy. Because high-interest rates always carry a risk of a fall in demand and less spending from the consumer. That is slowing down the economy.
Disruption of Supply-Chain because of lockdown in China: