Nikita Maslennikov: Four things that need to be done to prevent another global economic crisis

Big politics is always influenced by the global economy, and vice versa. Invest Foresight spoke with Nikita Maslennikov, head of the Economics and Finance track at the Institute of Contemporary Development, about the possible economic results of the G20 summit.

Nikita Maslennikov, head of the Economics and Finance track at the Institute of Contemporary Development

– Mr. Maslennikov, the G20 summit convened as the world’s attention was riveted on Russia and Ukraine in terms of global politics. At the same time, such platforms are also a place for the settlement of global political issues. What are the most pressing issues that need to be discussed and why?

The main agenda is defined in the summit communiqué, which is highly relevant as this venue was established for international coordination of economic policy and joint actions in this field. It is pleasing that a shared vision of the agenda has been developed and the document has been issued.

As regards the economic situation, countries are naturally concerned about the rapidly declining economic growth as well as the increased risk of a global recession in 2023.

How serious is this recession?

This is a very significant issue as certain European countries, such as Latvia, will most likely experience a slowdown as early as before the year’s end. Speaking of the United States, the situation there is rather complicated: the country has not entered a recession yet, but sale volumes are rather low now in the end of the year. Meanwhile, portfolio managers and top corporations’ managers mention a 60% probability of a recession in 2023 – the only question is its duration and depth.

And what about China?

China’s economy is slowing down quite a bit. This year’s growth will be at only half as much as last year at most. The upcoming year is quite risky, and these risks relate to a real estate bubble. The question is how to tackle it, which is a rather painful process. Secondly, the lineup of their regulators is changing while those who remain in the Political Bureau are the obvious ‘conductors.’

Could you please elaborate on those?

What’s important here is that the entire world could see the methods these conductors used to regulate the economy and solve financial issues back in 2015, when China’s stock market saw a dramatic decline which caused serious global concerns.

And what should be done today?

I would actually classify all tasks into four groups. First, central banks should continue battling inflation, even despite it threatening to reduce business activity and slow the growth. But it is still reasonable to continue these efforts as even an aggressive policy yields certain positive results. For instance, the eurozone’s annual inflation rate has declined from 9.1% to 7.2%. In China, re-introducing lockdown restrictions has led to reduced inflation as well.

And what about the second group?

The second cluster of tasks includes awareness of the need for a fiscal policy safety net. Efforts should be taken to focus on two goals: opportunities must be sought to provide targeted social support for citizens such as energy subsidies, and it is also necessary to support investments which serve as the basis for future growth – namely, the investments in human capital, climate agenda and advanced technologies.

At the same time, efforts should be taken to carefully treat expenditures and seek opportunities to spend financial resources as efficiently and purposefully as possible in the areas that can produce the greatest impact.

What else is required?

Work should be done to thoroughly control budget deficits. And the third cluster of issues includes debt ‘mines,’ scattered throughout the entire economic sector and posing a risk of both corporate and sovereign defaults.

To avoid provoking all these issues, particularly sovereign defaults, countries with growing debts should pay particular attention to their debt burden. As to low-income economies, 60% of them are facing a risk of default.

And there is finally the fourth group of tasks…

Yes, and it includes issues related to resources often borrowed by countries that seek to solve their own acute economic problems rather than pursue restless macroeconomic policies. They borrow resources to solve food problems, address world hunger, and tackle humanitarian and environmental problems. And the fourth cluster is related to these issues.

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