Question 1: Global Economy-Current Situation, Challenges, and Policies.

a) Discuss the current global economic situation and explain why recoveries are slower than
expected and diverse across countries with necessary illustrations. You may highlight the
case of your own country in your discussion.

As projected in the past, the global economy will be in a weaker position in 2022. The new
variant of COVID-19 (Omicron) spreads rapidly, and countries reimposed mobility
restrictions earlier with some relaxation to move the country's economy. High energy prices
and disruption in Supply-demand synergy resulted in higher inflation than anticipated in the
past. Many emerging markets and developing economies face this challenge and struggle to
align our policies to accommodate such a global impact. The ongoing reduction of China's
real estate sector and slower-than-expected recovery of private consumption also have
limited growth prospects.

Based on the IMF report on the global economic outlook, the following are the key aspects
that are impacting a lot:

The Long-lasting COVID-19 pandemic: In the unprecedented COVID-19 pandemic, the world
has faced multiple waves, and many people have been affected directly or indirectly by this.
Late in Aug-21, the worldwide average death due to COVID was ~ 10000 per day, which
reduced to ~ 7000 per day in October-21. The diffusion of vaccines is in its place, and it is
still uneven. Some countries have developed it while others struggle to get adequate
quantum for their population.

Different variants of COVID make it long-lasting. In mid-January, Omicron appeared to be

more transmissible than Delta with its less severe symptoms. Though many countries have
developed systems to track and monitor COVID cases, the net effect on hospitalizations and
deaths is still unknown. 

A different variant of COVID in late 2021: A resurgence in COVID cases in Europe is a

significant exporter of Oil, and Natural Gases globally impacted the energy sector disturbed
demand-supply synergy across the globe. In China, disruptions from COVID outbreaks,
interruptions to industrial production from power outages, declining real estate investment,
and a faster-than-expected withdrawal of public investment contributed to the economic
slowdown in late 2021.

Unstable Price Pattern of various commodities: The emergence of a new variant is not the
only risk crystallized in recent months. Inflation continued to rise throughout the second
half of 2021, driven by several factors of varying importance across regions. Fossil fuel prices
have almost doubled in the past year, driving up energy costs and causing higher inflation,
most prominently in Europe. Rising food prices have contributed to higher inflation,
especially in Africa.

Monetary conditions: In the United States, with price and wage pressures broadening, the
Federal Reserve decided to accelerate its taper of asset purchases and signaled that it would
raise rates further in 2022 than previously expected. The European Central Bank (ECB)
announced that it will end net asset purchases under the Pandemic Emergency Purchase
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Programme in March 2022, while temporarily increasing net purchases by a modest amount
under its longer-standing Asset Purchase Programme. The ECB has also committed to
maintaining its key interest rates at current levels until adequate progress is made toward
stabilizing inflation at its medium-term target.

b) Identify the risk factors and challenges the global economy is currently facing. Explain
why there is a risk of inflation amid such a gloomy situation and suggest policies (both
domestic and international) for sustained economic recovery and long-term economic
growth

The Global Economy is impacted by several aspects and issues presently going on all around.
We cannot hold responsible for one single reason that affects us alone.
The Year 2022 begins, COVID-19 and its economic and societal consequences continue to
threaten the world. The Vaccine inequality and uneven economic recovery risk fuelling
social tension and geopolitical issues. In 52 poorest countries, ~20% of the world’s people
and only 6% of the population have been vaccinated so far. By 2024, developing countries
(excluding China) will have fallen 5.5% below their pre-pandemic expected GDP growth,
while advanced economies (developed countries) will have surpassed it by 0.9%—widening
the global income gap.
Following are the present risk factors and challenges for global economy:

 Energy and Environmental Security: Energy and environmental security has emerged
as the primary issue on the global agenda for 2007. Consensus has recently been
forged on the potential for long-term economic, national security and societal
damage from insecure energy supplies and environmental catastrophe, as well as
the intense need for technological advances that can provide low-polluting and
secure energy sources.

 Conflict and Poverty: In a world where boundaries and borders have blurred, and
where seemingly distant threats can metastasize into immediate problems, the fight
against global poverty has become a fight for global security.

 Global Imbalance: Today’s interconnected world is in uncharted territory: the

world’s sole hegemonic power, the United States, nurses an addiction to foreign
capital, while up-and-coming powers such as China and oil exporters sustain
surpluses of increasing magnitudes. Some worry that the world is at a tipping point,
where only a dramatic shift in economic policy can alter the looming trajectory

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 Figure 1. Change in Inflation, December 2020 — Lates t
(Percentage points)
Energy Food Total inflation
6 FX Other

–2
US Europe Other AEs China Other EMDEs

Sources: Haver A nalytics; and IMF staff calculations.

Note: "Change in inflation" refers to the difference in year-over-year growth of the
consumer price index between December 2020 and the latest available data.
Stacked bars show the contribution of each component to that change. FXrefers to
short-term depreciation-induced inflation using estimates from Carrière-Swallow
and others (2021). Sample includes countries for which all components are
available. This covers 26 European countries, 2 other A Es, and 15 EMDEs.
Purchasing-power-parity weights are used for aggregation. A Es = advanced
economies; EM DEs = emerging market and developing economies; FX= import-
weighted nominal effective exchange rate depreciation.

The disinflationary policies depend on the causes of inflation those aimed to reduce it. If the
economy is not balanced, central banks have a responsibility to ensure the implementation
of policies to stabilize the price. Subsequently, the policies for controlling the aggregate
demand are usually controlled and monitored by raising interest rates to reduce the
liquidity of the population. The central bank opts to choose with varying degrees of success
and imposes monetary discipline by fixing the exchange rate and tying the value of its
currency. However, if global economic conditions than domestic conditions cause inflation,
such policies may not help. 

Central bankers rely on their ability to influence inflation expectations as an inflation-

reduction tool. Policymakers announce their intention to keep economic activity low
temporarily to bring down inflation, hoping to influence expectations and contracts' built-in
inflation component. The more credibility central banks have, the greater the influence of
their pronouncements on inflation expectations.

c) Based on uncertainties mentioned in IMF reports, how would you assess the growth
prospect of the company that you are working with? What policies would you suggest for
your company?

As we are working in manufacturing industries related to cement production. Such business

sectors, especially in developing countries like India, are in high demand as many
infrastructure projects are going on, and some mega projects are in the conceptualization
stage. This shows high demand in the future to grow the business.

Considering the present global scenario and in line with the IMF report, the following
policies are being suggested for the growth of our company to have a sustainable business.

Safety Policy: Full vaccination with the workforce and good medical infra to address the
medical exigencies. The Sufficient stock of personal protective equipment (PPE) and other
medical care infra for business.

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Energy Policy: In the present scenario, it takes hours to change our business methodology
and sustainably run the business. Reduce the carbon footprint and maximize the usage of
renewable energy. Many organizations have taken a target to replace their energy
requirement by 50% in 15 Years.

Substantial Business Policies: Use of Renewable Energy instead of Conventional fuel. Aware

the entire team about energy conservation and its benefits to reducing the carbon footprint.

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