Here’s Why We Are Amid Hyperinflation Right Now

It has been more than a year since COVID-19 has plagued our planet and taken millions of lives and livelihoods globally. This toll is still rising worldwide, as well as millions of people who remain unemployed are sobering reminders of world’s extreme social and economic stress.

Global Economy: Explained

Firstly, in simple words, Global Economy refers to the world’s economy as a whole or the worldwide economy. It is an aggregate of all the separate countries’ economies. Often it is simply defined as – “Worldwide economic activity between various countries that are considered intertwined and thus can affect other countries negatively or positively.” It has experienced its deepest recession since World War II, causing disruptions in economic growth, tourism, supply chains, and other areas. Lockdown policies and stimulus programs have been implemented by governments, but the scope of these acts varies greatly between countries. Secondly, an inflationary recession is when there is an increase in the money value or price. It is known as stagflation. For example, we know that once the price of onion reached more than ₹100 for 1 kg instead of just ₹ 20. When an inflationary recession hits it worsens the situation for farmers and poor families and many more.

Economic Depressions

When we talk about global economy in today’s scenario, we have to date back to the Great Depression (1929-39) as some scientists claim that 2020’s economic contraction is deepest since the Great Depression. It was the time when stock market crashed and lasted till 1940s, when World War II provided the foundation for new development. Post this, some politicians around the world began to talk more about income inequality, but few have taken concrete steps to fix it. This inequality was bad, but it keeps getting worse because of COVID-19. So, to avoid this, government should do more to coordinate virus-containment plans. The rich countries should help the poorest and worst hit countries to avoid the overall contraction of not only that country but the aggregate global economy. Future global crises would be much easier to handle for the benefit of everyone if COVID 19 will teach world leaders the importance of working together to prevent common catastrophes. But this is not the case today.

Correlation Between GDP & Inflation Rates

Although it is impossible to predict the exact situation regarding the effect of the COVID-19 pandemic, but economists believe, and we all surely agree that there is a significant negative impact on the global economy. Many major economies have lost at least 2.9 percent of their GDP (Gross Domestic Product) in 2020. US has recorded negative 3.5% of GDP in 2020 as compared to previous year. Nonetheless, it has been expected to reach around 6.4% in 2021 and will again reduce it to 3.5% as second and third wave of virus may spread which will eventually impose lockdowns. While China recorded 2.3% in 2020 and will go on till 8.4% by the end of 2021. Talking about India, it went in negative 8.0% in 2020 and will be expected to rise by 12.5% in 2021.

Reasons

  1. US-China Trade War: One of the most major factors as to why there is the potential impact the world economic growth with negative consequences is because of the US-China trade war. They are important as both the countries are the most powerful in the world and when their economies are combined, they account for the major of the global economy. The main reason why this is happening because President Trump is looking to reduce the dependence and import of cheap Chinese products. But this is not the case with China as depends upon huge exports to sustain its large economy and these huge exports go to the USA. Now that tariffs have been imposed on Chinese goods, their products are less attractive, making domestic US goods more appealing.
  2. China, recognizing the value of the United States as a trading partner, wants to keep the relationship going. Therefore, according to IMF, if the trade war worsens, it can wipe out about 0.5 percent of the global economy.
  3. Crude Oil prices: As we know, the oil prices today have reached the skyline, which means transportation costs also increase. The petrol becomes expensive hence our day-to-day products will come expensive. Ultimately, this cycle results in inflation which increases the value of money. And this is how it impacts the global economy resulting in a nosedive.

Conclusion

Parallel to this, adaptation to pandemic life has enabled the global economy to thrive despite low overall mobility, resulting in a stronger-than-expected rebound across regions on average. As mentioned through statistics, the world will project a stronger recovery in 2021 and 2022 compared to previous years’ forecast, with the growth projected to be 6 percent in 2021 and 4.4 percent in 2022. Nonetheless, the outlook is particularly disruptive, including disparities in recovery rates across and within countries, as well as the risk of long-term economic harm from the crisis. The United States is predicted to reach its pre-COVID GDP level this year, while many other advanced economies will not return to pre-COVID levels until 2022.

Similarly, China has already returned to pre-COVID GDP in 2020, while many other emerging markets and developing economies are not projected to do so until well into 2023. The divergent recovery paths are likely to widen the gap in living standards between developing and developed countries, in comparison to pre-pandemic expectations. Hence, we can say that as of now the global economy may be in the inflationary nosedive but as per the data, it will soon recover. Also, the government and policymakers should first prioritize health care spending, providing well-targeted fiscal support and maintaining accommodative monetary policy while monitoring financial stability risks to avoid any kind of economic contraction.

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Bhakti Khara
I'm an undergraduate law student who aspires to be the best in my profession. As the daughter of Gujarati businessman, the world of numbers and finance has always piqued my interest. Nonetheless, I learn by knowing, doing and I also learn from the challenges and unrehearsed tasks. As an upcoming corporate lawyer, I believe it would be my responsibility to make you aware about not only the legalities associated with finance but also provide you with a wealth of information about the world of finance, which will fascinate you, as it did me.
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