April 19, 2022
Global Chief Economist, Kroll Institute
Executive Director of Global Economics, S&P Global Market Intelligence
Chief Global Strategist, Barings Investment Institute
Senior Vice President, Europe, U.S. Chamber of Commerce
The last two years have been marked by economic challenges, primarily due to the COVID-19 pandemic and ongoing social and political unrest worldwide.
In a Virtual InSTEP conversation, three highly respected economists sat down with host Marjorie Chorlins, the senior vice president of European affairs at the U.S. Chamber of Commerce, for an in-depth look at the state of the global economy. Focusing on issues currently happening worldwide, they discussed sanctions and trade disruptions, imbalances in emerging markets, economic recovery in a post-pandemic world, and more.
Promoting Growth Around the World While Dealing With Inflation
Speaking about inflation problems in the U.S., Megan Greene, the global chief economist for the Kroll Institute, stated, “We put the economy on a deep freeze and then defrosted it. And when we defrosted it, we unleashed a bunch of pent-up demand.”
Greene described how supply and demand challenges have put a strain on the economy and how changes in consumers’ and businesses' needs throughout the pandemic have spurred inflation.
“I'm saying inflation will be much higher than the Fed's target through the end of next year,” Greene said. “But structurally, I think all the big drivers of low inflation over the past 15 years have mostly been turbocharged by the pandemic. Things like automation, digitalization, higher market concentration — those sorts of things have just increased over the course of the pandemic.”
Looking at Europe in contrast, Greene believes that demand isn’t the reason for higher inflation rates; rather, the demand is driven by the supply side.
“I think we'll be stuck in a scenario where we have really weak growth this year, really high inflation in the Eurozone, and the ECB (European Central Bank) [will be] stuck trying to choose whether it wants to support growth and keep the recovery going, or lien against inflation,” said Greene. “It can only choose one as much as it will want to choose both — and so the ECB is in a tough spot.”
The Struggle to Generate Economic Growth in China
Although it’s projected that China will see 5% real GDP growth below target this year, it is still a major driver of global economic growth, said Sara Johnson, executive director of global economics for S&P Global Market Intelligence.
“The Chinese government, I expect, will aim for economic stability and continue to loosen fiscal and monetary policies,” Johnson said. “We've seen some modest reductions in interest rates and reserve requirement ratios. We've also seen a shift towards restarting infrastructure projects and that will help to stabilize economic growth.”
Looking to the future, Johnson believes that the Chinese government will be able to overcome these sharp declines to fit into the global economy — although it may take a while.
“Overall, I think we can see China moving forward,” Johnson said. “Economic growth in the first quarter of the year was a 4.8% year on year, and that's with fairly robust growth in fixed-asset investment. Longer-term, we see a steady deceleration as a result of a decreasing working-age population, as well as a significant slowdown in total factor productivity growth.”
New Oil and Gas Producers Are Needed to Meet Global Energy Needs
Christopher Smart, chief global strategist and head of the Barings Investment Institute, discussed the current demand for oil and gas, particularly in regards to how countries are responding to Russia amid the war in Ukraine.
“We're expecting the supply from Russia to slowly … find other ways onto the global market, but Europe is going to wean itself, I think, from Russian oil and Russian gas over time,” Smart explained. “That will lead us to … higher energy prices.”
Smart noted that many countries might be exposed to Russia, even indirectly, due to business connections, and these connections can have a significant global economic impact.
“We all know what our direct exposures are to Russia, but we're not really sure who we're exposed to,” Smart said. “We're part of a series of leasing arrangements, so I am expecting a little bit more fallout from that in the coming months.”
From the Series