Ukraine's dependence on global economic processes is growing. Therefore, if we want to look into our own economic future, it is useful to analyze what’s going on around the world.
I wrote some time ago that the situation in the global economy affects us much more than we can even imagine. We have built a country over the past thirty years in which our economic condition depends on trends in the international commodity markets, our export income, and the ability to borrow. With the war, this influence has increased and Ukraine's dependence on global economic processes is only growing, therefore, if we want to look into our own economic future, it is much more useful to analyze what’s going on around the world than to look for the logic in the actions of local officials responsible for the economy. Moreover, the first option is much simpler.
For the past year, high inflation has been the biggest global economic problem. Prices around the world, except for China, which was "locked in quarantine", have risen a lot, reducing the purchasing power of citizens, destroying their savings, and reducing the profitability of corporations. The U.S. central bank vigorously struggled with this, raising rates at a frantic pace ––and was effective.
As it was announced last Thursday, the retail price index in the United States fell by -0.1% in December, and for the first time in many months, prices have gone down.
Moreover, a University of Michigan research report published last week indicated that inflation is likely to continue to fall throughout the next 12 months. But the positive effect of curbing inflation is costly: higher interest rates make capital more expensive, mortgage costs is rising, credit card debt is more difficult to service, and expensive car loans cause problems when buying a new car - all of this is slowing down the economy. And it is not surprising that even last year, when the inflation issue appeared, there were always alarming forecasts about a recession. The probability of it, according to many economists and investors, was and still remains high.
The Federal Reserve was almost the only one who insisted from the very beginning that the recession caused by the increase in the value of money could be prevented. A few months ago, only some people believed in it, thinking that the regulator was simply wishful thinking. Almost all economic forecasts for 2023 made by major banks and respected academic institutions predicted a slowdown in the economy, because from the historical perspective, a sharp increase in interest rates always led to the fact that something in the economy "is broken".
China's problems are very different from those of the U.S. and Europe. Inflation in the Celestial Empire during the last year did not exceed 2.8%, and at the end of the year it generally decreased to 1.6−1.8%. The main problem which was holding back the economy, (China's GDP grew by just 3% in the first nine months of this year), was the government's zero-tolerance policy for COVID. But fortunately in this issue common sense prevailed, and the authorities canceled the forced quarantine. Now it is very possible that the second largest economy in the world will be able to accelerate the pace of economic growth in the near future, which will have a positive effect on the recovery of global production chains, whose disruption lead once to the rapid growth of inflation globally.
To sum up, the hope for a "soft landing" is not only preserved, but in the first two weeks of the year it has even been strengthened. Even if the optimistic scenario does not come true and a global recession will start, it is likely to be shallow and short-lived. From the end of this year or the beginning of the next year, we should expect a new cycle of growth in advanced economies and China, which will create many interesting opportunities for developing countries – especially for Ukraine. At a minimum, the recovery of economic growth in the world will stimulate the demand for raw materials, which is an important survival factor for the Ukrainian raw goods economy.
But I would like this case being not about the survival, but the rejection of the current Ukrainian "raw materials and debt" economic doctrine. I don't know when the war will end, but it is very likely that the period of post-war recovery in Ukraine may coincide with the beginning of a new economic cycle around the world, when billions of dollars, euros, and yuan will be looking for a new application. And we must take advantage of this, because otherwise our economic future is unlikely to be successful.