The global economy is facing a multitude of challenges that could trigger another major crisis in the near future. The COVID-19 pandemic, the cost-of-living crisis, the supply bottlenecks, the geopolitical tensions, the climate change impacts and the debt vulnerabilities are some of the factors that pose significant risks to global growth and stability.
According to the latest World Economic Outlook report by the International Monetary Fund (IMF), global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024.
The IMF warns that monetary policy could miscalculate the right stance to reduce inflation; diverging policy paths in the largest economies could exacerbate the US dollar’s appreciation; tightening global financing could trigger emerging market debt distress; and a worsening of China’s property sector crisis could undermine growth.
In this context, how can individuals, businesses and governments prepare for the next global economic crisis? Here are some suggestions based on expert opinions and research:
- Individuals should build up their savings and reduce their debt as much as possible, especially high-interest debt such as credit cards and payday loans. They should also diversify their income sources and invest in assets that can hedge against inflation, such as gold, commodities or real estate. They should also have an emergency fund that can cover at least six months of living expenses in case of job loss or income reduction.
- Businesses should optimize their operations and supply chains to improve their efficiency and resilience. They should also invest in innovation and digitalization to enhance their competitiveness and adaptability. They should also maintain a healthy balance sheet and avoid excessive leverage or overexposure to risky markets or sectors. They should also have a contingency plan that can help them cope with various scenarios of demand shocks, supply disruptions or financial stress.
- Governments should coordinate their monetary and fiscal policies to restore price stability and alleviate cost-of-living pressures. They should also implement structural reforms that can boost productivity and ease supply constraints, such as improving infrastructure, enhancing education and skills, promoting competition and innovation, and facilitating trade and investment. They should also strengthen their social safety nets and support systems for the most vulnerable groups, such as low-income households, informal workers, women and youth. They should also cooperate with other countries to fast-track the green energy transition and prevent fragmentation.
The next global economic crisis may be inevitable, but it can be mitigated if we act now and act together. By preparing ourselves for the worst, we can hope for the best.
Learn more through this book:"Ten Crises: The Political Economy of China’s Development (1949-2020)" to trace the economic history of China from 1949 to 2020,