The World Bank’s latest semi-annual Global Economic Prospects report, released last week, points to some possible answers. Produced by a talented team of economists, the report is one of the best summaries of the current outlook for the global economy. And although the report uses the diplomatic language of multilateral organizations, it nevertheless contains a powerful warning.
For starters, the World Bank predicts that global economic growth will slow to 4.1% in 2022, from 5.5% last year. With rising debt burdens, supply chain bottlenecks impeding the flow of goods and services, and accelerating inflation, governments around the world are losing the ability to deliver a additional budget support. The report warns that rising debt caused by countries trying to ease the “pandemic-induced global recession” means that several economies are now “at high risk of debt distress”. Some may need relief.
The report also predicts that energy prices, which surged in the second half of 2021, will continue to rise – and more than the World Bank predicted six months ago.
Finally, the summary statistics tables in the report contain a lot of interesting information, in particular data on the recent growth of the gross domestic product (GDP) of the main economies and forecasts for the next two years. The fastest growing economies in 2021 were Argentina, Turkey and India, which grew by 10%, 9.5% and 8.3% respectively. But post-crash growth should be interpreted with caution. Much of last year’s growth simply reflected the depth of the 2020 pandemic-induced slowdown as economies climbed back to their previous GDP levels. In 2020, Argentina’s economy contracted by 9.9% and India’s by 7.3%, making them, along with Mexico, the worst performing major economies that year.
Usually, emerging and developing economies, aided by their lower base, grow faster than advanced economies. But, according to Global Economic Prospects, the prognosis for emerging markets and developing economies (EMDEs) through the end of 2023 is worse than for advanced economies, as EMDEs have limited leeway to provide a additional support and face an increased risk of a hard landing. Moreover, the pace of recovery is likely to vary significantly from country to country. Once the dust settles after the current turmoil, there will therefore likely be new winners and losers.
One of the main reasons for the uneven recovery has more to do with politics than economics. From advanced economies like the United States to EMDEs like Brazil, support for aggressive nationalism has risen sharply in recent years. This is bound to play a major role in determining the performance of these economies. Although there are exceptions, hyper-nationalism is generally disastrous for an economy in the long run. It goes without saying, because strident nationalism leads to inflated egos and fuzzy thinking. The countries under its influence attempt to become self-sufficient by erecting barriers to trade, capital and ideas from elsewhere.
A striking historical example is that of Argentina, which was among the fastest growing economies in the world during the first decades of the 20th century and was widely expected to overtake the United States. This changed in 1930, when a military coup resulted in the installation of hyper-nationalist Lieutenant General José Félix Uriburu. [left in the photograph] as president. Customs duties then increased, as well as obstacles to immigration. Argentina’s open economy, now closed to the world, quickly stagnated and the United States surged ahead. The lesson seems even more relevant today. In a globalized world, with new ideas and research emerging everywhere, countries that succumb to nationalist solipsism and close the doors of their economies and societies will be anything but formidable.
One of India’s remarkable post-independence achievements is that its founding fathers and early thinkers, like first Prime Minister Jawaharlal Nehru and author Rabindranath Tagore, were passionate advocates of openness to the world of ideas. They have stood out, not only in India but also in the world, for their commitment to absorbing the best from wherever it comes and upholding a common human identity.
I remember a friend of my father’s who visited us regularly and spoke of the need for a stronger nationalism. He criticized Indian thinkers who, while opposing Western colonialism, argued that India should keep its doors open to the best of the West in science, literature and philosophy. One day, furious at not having convinced us, he thundered: “My motto is: the West doesn’t follow us, so we mustn’t follow the West.
I was in elementary school, but even then I could see that his aggressive nationalism had clouded his thinking by adopting a motto that contradicted itself.
At a time when policymakers face a lingering public health crisis and, in some cases, the threat of violent unrest, countries that succumb to hyper-nationalism are laying the groundwork for their own failure. ©2022/Syndicate Project
Kaushik Basu is a former Chief Economist of the World Bank and Professor of Economics at Cornell University
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