So far, the global conditions are still in the stage of economic recovery from the effects of covid 19. Even in the country where the outbreak originated, the country is still battling the outbreak. Not finished with the outbreak, in early 2022, the world was again shocked by the Russian invasion of Ukraine, although at the beginning the reason for the invasion was not a complex issue, but until now , the four-month-long war has become a new central issue in the world that has caused many problems. dangerous risks to human safety, real or not. The pandemic and the Russian-Ukrainian war are just two of the big issues facing world governments today, we don’t count the minor border wars, the Jewish-Israeli invasion of Palestine, new epidemics that have the potential threaten human life, climate and energy issues. If the epidemic and the Russian-Ukrainian war are today considered as big problems and challenges, it is because the epidemic and the Russian-Ukrainian war threaten the flow of distribution of logistical goods as well as energy . If this is studied further, it could be because the countries that are the main players right now are countries that have great power. The involvement of major powers will become a magnet for other countries, the impact will also be felt by many countries and also the state actors involved. The greatest global impact today is that epidemics and wars have threatened global economic stability. At least there are about 10 countries in the world that have experienced inflation and are threatened with recession in the second quarter of 2022.
Understanding Recession, Crisis, Inflation and Depression
Several major countries in the world are currently experiencing high rates of inflation, and are even experiencing a period of recession. Before discussing further inflation and stagflation, it is necessary to recall a few terms in the threat of the economic environment. Economists use at least four terms to describe economic threats, namely:
A recession is a period when a country’s economic growth declines for two consecutive quarters. A recession is usually marked by a decline in purchasing power and an increase in unemployment. The difference between a recession and a crisis is that the impact of a recession is more evenly distributed across all sectors of the economy. The elements that cause a recession, for example, are the economic shocks due to the pandemic, excessive indebtedness and inefficient investments. Moreover, uncontrolled deflation can also be the cause of a recession. Deflation itself means that prices fall from time to time, causing wages to contract and continuing to drive prices down. This puts a stop to shopping activities.
Crisis is a situation where several economic indicators decrease drastically in a country. This is due to fragile economic fundamentals, as evidenced by slowing economic growth. Signs of an economic crisis are usually manifested by declining government spending capacity, low purchasing power of the population, and rising commodity prices.
The difference between a recession and a crisis is its impact, i.e. a recession can be deeper and more widespread over a longer period than a crisis.
Inflation is a condition in which the price of goods and services increases continuously for a certain period of time. Inflation is caused by an increase in the circulation of money in society, an increase in production costs and an imbalance between supply and demand. The impact of inflation can lower people’s purchasing power. If the purchasing power decreases within a certain period of time, it will automatically lead to a decline in economic growth, which can lead to a recession. The existence of inflation can also potentially be the cause of a crisis, or even a recession.
In the meantime, what is most feared if the recession does not end is economic depression. An economic depression can also be referred to as an extreme recession that lasts up to two consecutive years. In other words, if there is an economic depression, it means that the economic problems cannot be solved. This leads to a worsening of the impact, such as higher unemployment rates and has a global impact.
The inflationary tsunami swept countries in the United States, Europe and other countries. At least 60% of countries have an annual inflation rate above 5%. In developing countries, inflation can be above 7%. According to data from Trading Economics in April 2022, there were at least 10 countries with the highest inflation with Venezuela in the first place with high inflation reaching 222%, followed by Zimbabwe, which was 96.40%, then Turkey, which almost reached 70% in April. then. Uncertain economic growth causes recessions and crises. The global consensus is now that global economic growth will average just 3.3% this year, down from the 4.1% expected last January, before the outbreak of war. Global inflation is forecast at 6.2%, 2.25% higher than last January’s forecast. The IMF has lowered its forecast for the 143 countries this year which account for 86% of the world’s gross domestic product (GDP).
The threat of global stagflation 2022
The fact that many countries in the world must take into account today is higher inflation and slower economic growth. Today, the world faces a new condition of global economic threat, namely “stagflation” which is already in sight. Stagflation is the rate at which inflation exceeds expectations, while expectations for growth decline rapidly. In another description, stagflation is described as a characteristic in which the price of goods continues to be high while income does not increase. Stagflation reflects a time when no matter how hard you try to make money, the money you collect is not enough to meet the commodity exchange rate, when there is no of economic value activity that can be carried out due to the scarcity of materials, which leads to an increase in the number of unemployed. Stagflation is also defined as a condition of unemployment accompanied by inflation. Stagflation presents a tough choice for policymakers, which is the right path, the right tactic, and the right time. So far, the price of basic necessities in the market has been steadily rising, while the exchange rate is still weak, while jobs are increasingly difficult, wages and salaries have not not increased, while basic needs continue to soar.
Will inflation and the threat of stagflation change current power?
Economic strength is part of a country’s soft power, although it is undeniable that it is currently very difficult to avoid a real (military) war. Both types of power (soft and hard) are very transparent and easy to feel, even information spreads so quickly in the world. The situation where the domination of these two powers at the same time characterizes the current pattern of the world state order. We see that for years America held the top spot of world power, after the end of World War II there was a polar shift of power to America, where America led and also controlled the world’s culture, education, economy, and even weapons, so there was no choice but to follow America or have no place in this world. However, now things are starting to change. A weak US dollar and a strengthening Russian ruble reflect the characteristics of power in its current soft form. It turned out that the sanctions imposed on Russia did not worsen the situation of the country, the economic policies of Russia which raised the prices of gas and oil and required purchases in ruble forced the sanctioning countries to rethink the imposition of sanctions on Russia, because Russia is the largest energy exporting country. Coal and natural gas are essential for the survival of life, especially during the deadly winter. A protracted war between Russia and Ukraine could expose the world to the worst economic risk ever imagined. Not only the countries that are at war, the impact of the current change is also being felt by other countries, like it or not, state actors must be smart in taking partisan decisions with all the risks that they incur, it is very difficult to be neutral for developing countries, if they are pro- one of them will accept the risk, but if he is neutral he will be accused of being a traitor by both parts. However, withdrawing completely is impossible, since countries that are not involved in the war need energy supplies from the belligerent countries, be it energy or food, so there is no eternal enemy or eternal friend, there are only eternal interests. . What should be done is not to become too dependent on others, at the state level, it is time to reduce dependence on goods and energy from outside, create new breakthroughs, minimize exports. At the individual level, what needs to be done is to reduce consumption behaviors and get used to simple patterns and lifestyles and reduce dependence on government and certain actors.