By Kumar David –

Prof. Kumar David

There are different ways to periodise the modern world and one that I find meaningful in relation to modern times is post-pandemic and pre-pandemic (or post-Covid and pre-Covid) with the boundary in December 2019 when the WHO reported many cases in Wuhan, China. The Covid defined boundary is dramatic as it is physical (medical), economic and psychological. Prior to this the boundaries at which the world changed dramatically were economic, political or wars. Say in response to the financial crisis of 2009 Obama enacted the American Recovery and Reinvestment Act whose primary purpose was to bail out American capitalism (banks, insurance companies and manufacturing companies). Secondary objectives were to save jobs and invest in infrastructure, education, health, and renewable energy. The total commitment of Obama’s Troubled Assets Program was $830 billion.

Any global recession includes some or all of the following to different degrees:

• Capital related issues 

• Too much capital; falling rates of profit; obstacles to capital flow

• Decline in production of goods and/or services

• Decline in per-capita consumption

• Rising unemployment

• Interest-rate and inflation hiccups

• Economic obstacles

• Access to commodities; supply chain disruptions; energy prices 

The U.S. Congress passed a $2.2 trillion stimulus bill called the Coronavirus Aid, Relief, and Economic Security Act (CARES) in March 2020 to blunt the economic damage set in motion by the global coronavirus pandemic. With most forecasters at the time predicting that the U.S. economy was either already in a recession or heading into one, policymakers crafted legislation that dedicated historic levels of government funding to support large and small businesses, industries, individuals, families, gig workers, independent contractors, and the healthcare system. Then came Joe Biden’s American Rescue Plan of 2021 which includes $1.9 trillion on Covid recovery measures (probably partly overlapping CARES commitments) and $2.3 trillion on income support, subsidies for small business and unemployment benefits. The significant point is that since the melt down of global capitalism known as the Great Recession the United States alone has committed about $5 trillion, well above half in an attempt to forestall a pronounced domestic and worldwide economic crisis and maybe 30-40% on fighting Covid, improving healthcare services and protecting the elderly. 

Pic from: https://www.wallstreetmojo.com/global-recession/

American statistics are easy to find, reliable and available in English. America makes up more than half of global state-led capital expenditure on recovery programmes. Extrapolating I guess I could safely stick my thumb in the air and conjecture that the money spent by world governments in attempts to prop up global capitalism from 2009 up to the present is about $10 trillion. And all indications post-2023 are that this mission will be singularly unsuccessful! The world seems poised for a severe recession in 2023 and the post-2023 period. 

Peering into future what are the significant short-term indicators visible, leaving aside Covid (and that’s a lot to neglect). In no particular order the five interconnected quarterly indexes that are important to follow are; primary consumer price inflation; central bank interest rates – particularly the FED whose rates drive the others; nominal quarterly GDP growth rates in different countries; national exchange rates against the dollar; and finally the state of play in the economic and strategic competition between China and the USA. Annualised inflation in the US was about 9% (November 2022) and higher in much of Western Europe (over 10% in the UK), though forecasts are that inflation in 2023 (6.5%) will not be as bad as 2022 (annualised 8.8%) in the US. But inflation expectations in US will be well above the FED’s 2% target and its interest rates can be expected to remain high. 

The demon of Stagflation is terrifying the FED. Annualised inflation of about 9% in November 2022 and higher in much of Western Europe (over 10% in the UK). Though forecasts are that inflation in 2023 (6.5%) in the US will not be as bad as 2022 (8.8%), inflation expectation is well above the FED’s 2% target and the FED’s interest rates can be expected to remain high. The statistics in today’s column are culled from several sources including the IMF, the World Bank and financial publications, and take account of the views of expert forecasters balanced by my own carefully controlled judgements so as to give my readers the best.

The scene is depressing. Global growth will slow to say 2.7% in 2023 (4.5% in China, 1.5% in the US and negative in Russia). Many more countries are facing recession and the trend will persist with distressing consequences for developing economies. Shift from consumption to policies that target currency stability, Growth in production and meeting IMF guidelines will invoke serious internal political conflict. Burglary is spreading in Lanka as the hungry become desperate for food. Any and every approach to development seems inadequate during a global depression. A future NPP-JVP government, probably in an alliance with progressive liberal entities, will need to strategize with great care. Doing well at the next elections is not a solution for the NPP-JVP, it is only the beginning of its headaches, but it’s an unavoidable rite of passage.

et me now comment on the big-capital picture. The world is awash with excess capital. Rising interest rates make Treasuries and Equities unattractive, overseas investment faces post-Covid obstacles and China is no longer the open-house for investors that it was in the Deng Xiao-ping years. The changes in internal class relations also affects the dynamics. People say the Twenty-first is Asia’s century and unless one walks through the malls of Shenzhen and Guangzhou and marvels at the transformation of Shanghai it does not strike one personally that it is a middle-income country with a middle-class more numerous than the entire population of the USA. 

Political tensions and competition for global domination not capital and technology hunger now rule China-US complications. Thirty-seven thousand cases of Covid-Omicron were reported in one day (13 Dec) because of lifting of the Zero-Covid policy due to political imperatives. Bloomberg on Christmas Eve reported that a spike in infections had reached 250,000 to 300,000 a day in the southern city of Dongguan. There will be 250-millon new Omicron infections in the first 30 days of December say other reports. Xi loyalists are now in a funk that Xi’s third-term and life-time appointment will come under challenge for reasons of policy incompetence. This as an example of how the unforeseen, not just in China but anywhere (Ukraine, Russia, Iran, USA) can blow history into uncharted waters in these uncertain times whose backdrop is a pending global economic recession.

If big capital departs Treasuries, Equities, if private venture and start up opportunities are not firing up, if companies in the metropolitan centres are not expanding bigtime in production and technology, inevitably the there is a decline in the rate of profit. Post-2023 forecasts are bleak for big-capital and most business/finance magazines and experts see a global recession on the horizon. There is however a word of caution; do not put any faith in the opinions of brokers and market analysts whose role is to advice their clients about what stocks to buy or sell at a moment’s notice, what to “short” or “long” and how to make a quick buck tomorrow before lunch. That is an entirely different game and of little use for understanding global or domestic financial, economic or structural movements. The same is true for daily oil-price, gold or commodity price movements. What is relevant for the purposes of an essay such as this is to see the longer-term secular or trend-setting influences.

I have enumerated the examinations and accounts of global analysts and institutions about world economic trends in the 2023+ period. I have adjusted a little here or there to make it more useful. The big picture is largely driven by objective and materialist factors and therefore predictable.  The small scale is not predictable but more fun. Take Ranil for example. His personal vote in 2015 was perhaps the largest ever, he and his party were wiped out in 2020, President of the Republic in 2022 and what next? I have no clue.