What are the Predictions for the Global Economy in 2023?
The world is changing and the way we do business needs to change as well. Many experts are predicting that the global economy will be vastly different in 2023 than it was in 2008-09. Central banks in the US and UK, have raised interest rates several times in 2022, and this has also propogated to central banks around the world. Post Covid demand gap as well as the war in Ukraine, and the continuing global supply chain issues have been some of the contributing factors for rising inflation, prompting central banks to raise interest rates. to control CPI. The Euro began to fall in 2022 because of a number of factors including: the Eurozone is facing an economic crisis, members of the EU are turning against European Central Bank (ECB) monetary policy, as well as poor GDP growth numbers across Europe. In 2022, six out of seven EU countries have a higher unemployment rate than the US. The pound has fallen in recent weeks, and there has been monetary as well as fiscal action in the UK. While there are country specific patterns, a recessionary trend is emerging, with most economists calling out a probability of a recession in early to mid 2023. Energy prices have skyrocketed, hitting familes at the lower end of the spectrum, rally hard.
How does a recession impact climate policy?
The financial crisis of 2008, is not just a dark time in history. In fact, it has had a lasting impact on our society. While some recoveries take a long time, this recession was particularly deep and prolonged—the cause of which is still debated. As the global economy recovered from recession, the focus shifted to how to restore stability and prevent future recessions. A recession is a period of economic decline. It can be caused by a number of factors, such as the fall in demand for goods and services, or the rise in the cost of raw materials. Rising interest rates, mean that the cost of borrowing is going up, and this means that households will not spend, and hence consumption is likely to fall. This leads to a demand gap in this quarter, which is likely to continue into the next couple of quarters. Cost of raw materials has been impacted by global supply chain problems, and the war in Ukraine affecting energy prices. It is also important to note that Russia and Ukraine together supply close to 12% of our daily calorific needs. The impact of a recession on climate change is not always clear. Some argue that it has no effect on climate change while others say that it does. The truth is that there are many factors at play and it's difficult to pinpoint one single cause for climate change. The major economies like the US and UK, are prioritising their own power demand, and have approved fossil fuel projects that have been deemed as carbon bombs. A lack of viable renewable energy options, has been one of many reasons for this policy development. Reducing the use of fossil fuels by just one-third would limit global warming to 1.5C, according to a study published in Science Advances. That is because whatever we can get rid of will emit less carbon dioxide than what will be emitted by burning fossil fuels at the current rate. Many countries are trying to tackle the issue of climate change and reduce their reliance on fossil fuels through renewable energy production, but these efforts are being hampered by an economic recession and a lack of technical know-how in the renewables sector. In order to accommodate the vast energy needs of a growing human population, 21st century civilization will have to adapt to a post-fossil fuel world and drastically reduce its reliance on carbon-emitting fuels.
The concept of green growth…is it fact or fiction?
The idea of green growth is not a new concept. It has been around for a long time and in recent years, it has been getting more attention from the public and researchers. The concept of green growth is not just about environmental sustainability but also about social justice and economic development. The idea behind it is to create sustainable economies that are inclusive, equitable, and prosperous for all people across the world. However this is not possible with the current form of capitalism which prioritises shareholder returns, over everything else. The crux of the idea is to put more emphasis on a capitalist system that values people and the environment over profit. In the current form of capitalism, we can achieve sustainability only by reducing consumption, and hence it would be a green de-growth. strategy. Growth is unsustainable and unsustainable growth has negative effects on the environment. It causes climate change, increases the inequality gap, and contributes to the race for natural resources and land. Governments need to put more emphasis on a de-growth strategy instead of economic growth as they do not have options other than GDP growth in order to provide what people need without deterioration of environmental quality. The ecological footprint of every person is determined by their lifestyle, which includes how much they consume, what they consume, and how much they produce. Economic growth requires constantly increasing material consumption, which has negative effects on the environment. This means that people need to change their lifestyles if they want to reduce their ecological footprint. For example, in England a tax was introduced on single-use plastics bags at the beginning of 2018 because these plastic bags are detrimental to the environment and cause pollution of oceans, rivers and lakes as well as habitat loss and degradation.The ecological footprint is determined by the ecological capacity of a resource, which is a measure of how much the Earth can support with current technology. The greater the life expectancy and standard of living in a society, the lower its ecological footprint because it has greater access to resources. For example, countries with higher levels of wealth have lower ecological footprints because they have access to resources that poorer countries do not like forests, clean water and other natural resources.
What if we re-booted our economic engine, with a different version of capitalism?
Capitalism has been around for a long time, and it has been constantly evolving. We need to re-boot our economic engine in order to change the current state of capitalism. The new DNA for capitalism would be based on the following principles: -
A more balanced distribution of wealth
A more sustainable environment
Less inequality in the workplace and society
How can this be achieved? One thought that has been in the making, is to convert carbon, into a financial obligation on the corporate balance sheet. In 2007, a Brazilian environmentalist proposed converting carbon emissions into a financial obligation for corporations. The idea was for large multinational companies to be charged a fee for each ton of carbon emitted by their factories and other facilities. These fees would then be redistributed in the form of social security payments to citizens. This could incentivize companies to cut back on pollution by making it more difficult or expensive, while at the same time make it easier for them to stay profitable. This also means that more money would be available to reduce economic inequality. Many countries and regions have introduced carbon taxes, as well as developed voluntary carbon markets. However, this cannot be achieved by one country or region, since the fundamental externality of emissions holds good. This needs to be a global, coordinated, and competitive effort. What are your thoughts?