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As a Global Stagflation Crisis Approaches, Foreign Aid Must Be a Priority

Global economic growth is on a steep downturn, due primarily to the consequences of the COVID-19 pandemic and supply chain shortages from the Russia/Ukraine conflict. The World Bank and the Organization for Economic Cooperation and Development (OECD) had each predicted that global economic growth in 2022 would reach more than 4% earlier this year. At the beginning of June, they scratched the original estimates, saying that economic growth would barely reach 3%, indicating a possible crisis of global stagflation.

Economic Downtown After the Pandemic

At the end of 2021, many global organizations, including the United Nations and the International Monetary Fund, predicted that the global economy would see a post-pandemic boom. However, because of the conflict in Ukraine and the COVID-19 shutdown in China, the global supply chain took a significant hit. In turn, inflation is rising at an alarming rate, especially in global economic powerhouses like the United States and England. This is cause for concern not only for rich countries but for small and developing countries as well, which often rely on economic overflow from large nations.

Stagflation

The World Bank and the OECD declared that the global economy is at risk of stagflation, which is a combination of high, sustained inflation and stagnating growth. Global stagflation poses a risk for everyone, but poor and developing countries would face the worst of it. Many developing nations’ economies rely on exports to wealthy nations, meaning a global economic slowdown would seriously harm them. Additionally, high interest rates and low growth would make it nearly impossible to pay back large quantities of debt. The World Bank has predicted that some nations will default on their debts, which would mean a decline in living conditions.

The most recent stagflation crisis took place in the 1970s when the global economy saw aggressive inflation and low economic growth. The current situation is worrying to many economists and activists because at that time living standards and economic well-being took a drastic downturn in many developing countries in Latin America and the Middle East.

Avoiding Stagflation

The good news is that the circumstances of the current economic situation differ significantly from the stagflation crisis of the 1970s. Most central banks are now independently operated and the global economy is less reliant on low energy prices, two factors that provide some relief to poorer countries.

The OECD believes that a stagflation crisis can be avoided, but economic powerhouses and international organizations need to take serious action. There are significant factors in play that are preventing governments from stepping in, primarily the fact that developing nations have already accumulated record levels of debt.

To avoid stagnation, the World Bank suggests worldwide policymakers focus on five key areas. They need to:

  1. Limit the harm caused by the war in Ukraine by coordinating the crisis response in terms of delivery of food and medicine and support of refugees.
  2. Counter the high prices of oil and food by increasing supplies of key commodities.
  3. Escalate debt relief as debt distress spreads from low-income countries to middle-income countries.
  4. Continue to strive to contain COVID-19 globally through strong immunization programs.
  5. Continue to invest in clean energy and energy efficiency and decrease their reliance on fossil fuels.

The United States Steps Up with Aid

Support from the United States could come from protecting and enhancing the International Affairs Budget, emergency COVID-19 relief and direct collaboration with the governments of developing nations concerning exports and investments. The United States has taken a step in the right direction by supporting the Partnership for Global Infrastructure and Investment (PGII), which will pledge $600 billion to the global economy over the next five years.

–Ella DeVries
Photo: Flickr

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Taking a Look at the High Cost of Living in Greece

Cost of Living in GreeceAlmost ten years after the global financial crisis, the cost of living in Greece has continued to climb, while wages and available jobs have dropped considerably.  This unceasing contraction of the Greek economy has led to a sharp increase in the percentage of the population living in poverty to 23.2 percent in 2015.

The Greek recession, now on track to become a Greek depression, has devastated personal incomes. A Greek person living in 2014 had the same amount of disposable income that they did in 2003. Due to lost incomes and cut pensions, Greece is, by some estimates, 40 percent poorer than it was before the crisis.

However, it is not just wealth that has suffered. Nearly one million Greeks are unable to afford to pay for healthcare, and many smaller local clinics have closed down. As a result, wait times at larger facilities have increased. Furthermore, scores of workers have been discouraged from entering the workforce. Long-term unemployment has skyrocketed to 20 percent. That number is even higher among young Greeks.

Many families in Greece now rely on the pensions of one or two family members to live and eat. Pensions have been, and are scheduled to be cut due to new austerity measures introduced through the E.U. and International Monetary Fund’s bailouts. There is little money left after these families pay rent for anything else. More than 40 percent of Greeks have fallen behind on utility payments. This rate is the highest in all of Europe.

For many, the cost of living in Greece has become too high. Currently, more than half a million young and educated Greeks have left the country in search of better opportunities elsewhere.  However, there may be hope for those dismayed by the oppressing cost of living in Greece. On July 24, for the first time in three years, Athens has collected on new debt through bond sales.

Athens hopes that the 3 billion euro bond will lead to more investor confidence in the Greek economy. As confidence and credit returns, many are hopeful that people can go back to work and the country can pull itself out of this depression.

– Thomas James Anania

Photo: Flickr

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Financial Crisis Among Causes of Poverty in Italy

Causes of Poverty in ItalyIt is vital to evaluate the root causes of poverty in Italy, especially because 17.5 million Italians now live below the poverty line, with 4.74 million classifying themselves as absolute poor, or unable to purchase basic goods and services, according to a recent report by the Italian National Institute of Statistics (ISTAT). The report reveals an almost threefold increase in absolute poverty rates since 2006, when only 1.7 million were reported as absolute poor.

The national poverty rate remained high at 28.7 percent, a far cry from the target numbers set by the Europe 2020 Strategy for Poverty, which aims to cut the number of Italians living in poverty to 12.8 million.

The country’s slow recovery from the 2008 global recession is partly to blame. Nine years after the crisis, industrial production is yet to recover after 25 percent of the industrial sector closed down in 2008. The labor force has also staggered since the crisis spurred the unemployment rate to jump from 5.7 percent in 2007 to 13 percent in 2014. The national unemployment rate stands at 11.1 percent as of April 2017.

This five-year period from 2008 and 2013 saw the country experience its longest and gravest economic downturn since World War II, and its consequences are still the root causes of poverty in Italy.

The arduous journey to economic recovery has impacted all sectors of the country, with none so negatively affected as the country’s youth. With its high unemployment rate and the lowest wages in Europe, Italy has not been favorable to the young. One out of ten young Italians now classifies as poor, a massive increase from two percent in 2007.

Those who live in the underdeveloped South, the region that holds about a third of Italy’s population, also run a higher risk of living in poverty than their neighbors in the North and Center. The report by ISTAT indicates that 55.4 percent of residents in the Sicilian region live in poverty, a stark contrast to rates of 17.4 in the north and 24 percent in the center. The north and center house the tourist-attracting cities of Milan, Venice, Florence and Rome.

The massive debt amassed by the Italian government during the crisis has rendered it unable to address this root cause of poverty in Italy. Moreover, with the economic productivity of other regions, focusing on these regions instead of rebuilding the south is a temptation too profitable to pass up. The GDP per capita generated by these regions is 40 percent higher than what is generated by the south.

Some have expressed that this approach may widen the already massive socioeconomic gap between the regions. They cite that the lack of attention by leaders for the south will only produce other causes of poverty in Italy. “Our government is resigned to the idea that it is not a responsibility of the Republic to combat the causes of poverty in Italy,” Giuseppe De Marzo, an activist with the Misery Ladra campaign, wrote. “The institutionalization of poverty [is the consequence] of a political culture that denies universalism, solidarity and social cooperation as fundamental instruments of democracy to guarantee dignity.”

– Bella Suansing

Photo: Flickr