Getting things under control

The spread of new variants of the novel coronavirus has brought more uncertainties to the global economic recovery, which will face stronger headwinds if the immunization gap between developed countries and poor countries persists. It is estimated that the world's economy will suffer a loss of $5.3 trillion in the next five years.

In the short term, the policy adjustments of developed economies will be the major factor determining the path of the global economy. If major developed economies fail to curb inflation and maintain pro-growth monetary and fiscal policies, it will trigger violent fluctuations or even tumbles in the assets prices in other countries, and thus impede the global economic recovery. The global economic growth rate is projected to fall to about 4.5 percent in 2022 and further slow down to between 3 to 3.5 percent in the next three to five years.

In addition to the pandemic, there are several noteworthy trends in the global economy and governance in 2022.

One trend is that emerging economies and developing countries are narrowing their gap with developed economies. The International Monetary Fund in its October report forecast that the economy of emerging markets and developing countries would grow 6.4 percent in 2021, higher than the forecast of 5.2 percent for developed economies. In 2022, both emerging and developed economies will continue rising, which means the status of emerging markets in the global economy will further increase, and the international landscape will remain in the midst of profound changes.

The global supply chain may develop into two separate systems. Since Donald Trump became the president of the United States, the country's diplomacy has shifted from "interests-oriented politics" to a combination of "interests-oriented politics" and "principle-guided politics". Particularly, since Joe Biden took office, the US has attached more importance to the making of rules, and the using of rules to contain China's development.

Currently, the US is pushing the formation of parallel rule systems in fields such as ideology, trade and investment, technology and the military, in which the US and China are competing with each other. The rupture of global supply chains and the division and alliance among major powers are pushing the world toward more extensive parallel systems.

Another trend is the continuing diversification of the international monetary system. The US dollar has long been the dominant international currency. But the growing status of the euro and the currencies of emerging economies such as China's renminbi, as well as the US' abuse of financial sanctions, are contributing to the further diversification of the international monetary system.

The European Union's roll-out of a 750-billion-euro ($850-billion) recovery plan marked an important step forward－the three pillars of a single currency, a central bank and unified fiscal policies have now been put in place. That raises the EU's capability of emergency fiscal transfer and means the US treasury bonds now have a serious potential competitor for the first time since World War II. Plus, the expansion of the eurozone in 2023 will further extend the influence of the euro and undermine the dominant status of the US dollar.

The US' abuse of financial sanctions is also accelerating the process of de-dollarization. In addition, the expansion of the Instrument in Support of Trade Exchanges, the EU's special payment channel with Iran, will further weaken the privileged position of the US dollar.

The double effects of technological progress will be augmented. On the positive side, technological development could drive economic growth and industrial innovation, and improve social welfare. The large-scale commercialization and industrialization of the new wave of technological innovation, especially the information revolution with intelligent manufacturing at the core, are expected to significantly boost the efficiency of manufacturing and the service sector. But technological progress could also create negative spillover effects for socioeconomic development and international relations.

First, technology has become a key area of strategic competition, and the increasingly fiercer competition in technology may lead to confrontation among major powers. Second, cyberspace is a new area where countries have shared interests and is a new venue for conflicts among nations. The competition in information and cybersecurity is growing more intense. Third, the technological innovation in new energy will trigger profound changes in the global energy landscape. And the focus of geopolitics will shift from the Middle East to Africa and some Latin American countries, bringing more challenges to the fragile balance in global geopolitics.

Increasingly prominent global challenges call for better global governance. But as the competition among major countries intensifies, and global governance increasingly becomes an instrument for such competition. Reform of the multilateral governance system will become more difficult, which is highlighted in the crisis facing the World Trade Organization's dispute settlement mechanism.

Meanwhile, global issues related to climate change are exacerbating. The devastating impact of climate change the world witnessed in 2021 will become a new normal in the future and global action is urgently needed to address the climate challenges. How to strike a balance between emissions reduction and economic development, and between energy transition and normal functioning of economic activities is a daunting challenge facing all countries.

Moreover, there is still a lack of mechanisms and rules for emerging sectors such as data security, bioengineering and artificial intelligence. Countries need to strengthen their coordination, bridge differences, and strive for consensus on how to guard against risks in these areas.

The author is a member of the Chinese Academy of Social Sciences, and director and a senior fellow of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn