The abnormal decline in the global economy: temporary difficulties or the end of the “prosperity era” in Europe?
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2022 was a year of total economic crisis throughout the world. No country’s economy was spared by the crisis, and wealthy Western countries were most severely affected as the crisis threatened their world leadership and their comfortable lifestyle. Many expressed very cautious and optimistic assumptions about the causes of the problems. The most localized cause was the war in Ukraine, which led to an energy crisis. Experts constantly said that “the time of cheap energy resources for mankind is over” and now more expensive oil and gas will pull the world economy down. A deeper cause was seen as the long-term effects of the restrictions that came with the COVID-19 pandemic. Critics of capitalism around the world predicted a new cyclical crisis, identical to the one in 2008 or even the “Great Depression” of 1929-1933, believing that it began as early as 2015-2016.
However, there is reason to believe that the causes that led to the crisis are much more complicated. Indeed, it is a complex set of events, among them the slowing of scientific and technological progress and the transfer of enterprises from the United States and Europe to East Asia, which divided the world into “producers” and “consumers,” with a pre-ordained conflict between the former and the latter. The socio-cultural crisis in the West, which led to a new “Cold War” and a split of the global economy, also had a serious impact. And it will be virtually impossible to overcome such enormous trends in a year, 5 or even 10. Therefore, the world is doomed to change beyond recognition, and probably not always for the better and these negative changes run the risk of becoming particularly pronounced in the U.S. and Europe.
The most striking indicator of the economic crisis was the skyrocketing inflation. If by the beginning of 2023 thanks to tight monetary measures its growth had been slowed down, in September its indicators looked catastrophic and extremely devastating. Back then, in 69 out of 193 countries, inflation reached a world record high and the most problematic region was formerly the most prosperous Europe, where this “record” was set by as many as 27 countries, while annual inflation in the Eurozone accelerated to 10.6%, which was also the worst indicator in EU history. The rate of price increases in September was at historic highs in three European countries: Bosnia and Herzegovina (17.3%), the Netherlands (14.5%), Germany (10%), and Sri Lanka (73.7%), where a revolution took place against this background. The oldest record was broken in Austria, where inflation accelerated to a maximum of 10.5% since 1952. In Belgium, the rate of price increases also reached double digits at the beginning of the fall, accelerating to 11.3%, the highest since 1975. Inflation in Great Britain, Denmark and Malta returned to forty years ago, where it was 10.1%, 10% and 7.4%, respectively. Residents of Finland, Italy, Norway, Tunisia, Morocco and the Kingdom of Tonga had to remember the rate of price increases in the second half of the 1980s. Inflation in the U.S. was not small either, and although it peaked at 9.1% in June, in September it was at a very high level for this country with 8.2%.
Australia (7.3%), Sweden (10.8%), Portugal (9.3%), Argentina (83%), the Czech Republic (18%), Croatia (12.8%) and Senegal (11.9%) in September experienced the greatest inflation since the early 1990s. Eleven countries, including Poland, Lithuania, Hungary, Latvia, Bulgaria and Turkey, returned to the rate of price increases seen in the second half of the 1990s. Mexico, Slovakia, Laos, Ghana, Montenegro, Romania, Samoa, the Gambia and Nigeria saw the highest rate of price increases since the first half of the 2000s. In contrast, Singapore (7.5%), Guatemala (9%), Sao Tome and Principe (21.9%), and the Philippines (6.9%) have not seen such inflation rates since the 2008-2009 global financial crisis. Sixteen countries, including Egypt, Kazakhstan, Japan, Ukraine, Azerbaijan, Serbia and Kenya, recorded the highest inflation in September since the 2010s. Vietnam (3.9%), Democratic Republic of Congo (9.05%), Uruguay (10%), China (2.8%) and Saudi Arabia (3.1%) returned to their highs of COVID-19 times. At the end of 2022, inflation in five countries was higher than 100%: Zimbabwe (269%), Lebanon (162%), Venezuela (156%), Syria (139%) and Sudan (103%). In Argentina and Turkey, which are much better off, inflation was only slightly lower, exceeding 80%. The mildest inflationary situation this year was in China, where price growth was only 1.6% for the year, which clearly shows this country as the new world leader.
As we can see, it is the U.S., and especially Europe, that has become the center of the global economic crisis. In the long term, this means the end of the era of their dominance and prosperity, which is especially relevant for the EU, since as a decentralized governance, the EU cannot accentuate and aggressively defend its interests. Europe, which, although not stable, still represented the image of technical and social progress that the futurists dreamed of at the beginning of the 20th century, risks becoming unrecognizable. Convenient transportation, comfortable urban environments, an abundance of inexpensive food and goods, and affordable housing are all a thing of the past. Civilized Europe seemed self-sufficient and strong because of its internal potential due to its huge accumulated human and financial resources, but this turned out to be only a stereotype. The energy sector in particular has shown this clearly: as of early November 2022, gas consumption in the European Union had fallen by roughly 25% compared to the average of the past five years. This happened both at the expense of industry and at the expense of reduced consumption of heating and electricity by EU residents, demonstrating a crisis of both household consumption and industrial production. Against the background of the fragmentation of the world economy, the presence of military and political conflicts and the destruction of supply chains, it became clear that Europe could not be self-sufficient, and the years of economic globalization were marked by deindustrialization and total dependence on the international conjuncture.
The United Kingdom was particularly hit in a hard way by economic and inflationary surges, with prices rising as much as 10.7% at the end of the year. The once-showcase global symbol of the post-industrial economy of “finance and services” risks a return to the 19th century against the background of Europe’s most serious energy metamorphosis. At the time of these events, a catastrophic and painful restructuration of the consciousness of Europeans is imminent. The infantile adolescent belief in natural economic growth and the illusion that any serious negative events are impossible is being shattered. Now this mentality will be in a strong contrast to the impending reality, where the U.S. and, especially Europe will face a period of not only economic, but also political turbulence. The civilized world did not have enough resources to provide its citizens with all the benefits of the past. Welfare was too fragile and fell in opposition to the new world order. Now, European leaders only can reassure their voters with “political antidepressants,” which are unlikely to last more than 8-10 years.
The anti-inflationary measures that have slowed it down a bit have still hurt the outlook for the economy, causing a recession. Rising inflation has led to rising interest rates of global central banks around the world and there was a chain reaction: when the U.S. Federal Reserve raised the rate in the U.S., it caused the dollar to value, after which central banks in other countries were forced to either raise their rates or tolerate the weakening of their currencies. Now the central banks of both developed and developing countries are raising rates, and this puts the world on the verge of an economic downturn. Too many countries are simultaneously raising the cost of money for borrowers, and consumer and business demand for credit is regularly falling, followed by a decline of business activity. Nevertheless, it would hardly be possible to do otherwise: there is nowhere else to lower rates to stimulate demand in most countries, as they have already become extremely low over 2020-2021. Negative, zero and ultra-low rates also brought with them the risk of recession even closer, as they produced insolvent and unstable “welfare era” businesses.
The crisis has exacerbated tensions and struggles between former stalwart allies: the U.S. and the EU. In Europe, and in Germany, as the region’s leading country, there is now concern about the U.S. $369 billion package of subsidies and tax breaks to support U.S. “green business,” which went into effect January 1. Germans are frustrated that Washington is not offering a peaceful solution to the problem and are increasingly considering the option where the Europeans will pay for everything to their own detriment. The Europeans’ fears are caused by aggressive measures to support their own businesses in the U.S., which will encourage investors to leave the European market for the U.S. Ultimately, this threatens a real trade war not only between the U.S. and China, which is already a reality, but also a similar confrontation between the U.S. and the EU. At the same time, there is no doubt that the United States will continue to put economic pressure on Europe to minimize the crisis on their side. And to do this, they need to make those countries that enter their political and economic zone of interest poorer and more manageable. The U.S. have already declared that the area of interest of the United States is Canada, Australia, Japan, Britain, and continental Europe, which will get the worst position in the new system of “division of labor”. Europe has something to respond to the U.S. actions, but the EU is unlikely to dare to do so, the political will is too weak. Europe, like other regions of European culture, is slipping into poverty. The most advanced continent on the planet, the birthplace of Western civilization, is rapidly becoming poorer and degrading. At the beginning of the 21st century Europe was the most advanced part of the world, but now it is facing critical times, both economically and culturally and the problems of 2022 are just the beginning of a difficult journey that will last decades.
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[…] the past year, economic stagnation and recession have become the norm for even the most developed European countries. Europe’s industrial sector, which cannot cope with rising electricity and gas prices are […]