Weeks ago none other than the usually phlegmatic Governor of the Bank of England Andrew Bailey described the situation facing the economy as “apocalyptic”. Indeed, to paraphrase Ezekiel – who referenced the horsemen as “sword, famine, wild inflationary beast and plague” – could well be describing the confluence of problems facing the global economy.

Financial markets seem to have taken note of the circling perils. The first few months of 2022 has been the first “everything” sell off for four decades, with major asset classes such as stocks, bonds, and particularly crypto all sharply down.

The last time this happened was in 1981, when Paul Volcker’s Fed decided to put the economy into a recessionary nosedive in the singular mission to break the back of inflation. That the Federal Reserve Governor Jay Powell is belatedly attempting to wrestle the inflationary beast to the floor while unconvincingly stating that he is hoping to engineer a “softish” landing for the economy is a latter day reminder of how difficult this is. 

Even the Fed has now conceded making major monetary policy mistakes during the pandemic, while moreover last year’s $1.9tn fiscal stimulus passed by the Biden administration was clearly an unnecessary, misguided and irresponsible measure that added materially to inflation at questionable benefit to the real economy. How is it that we forgot handing out free money is inflationary? Forty years ago Paul Volcker was happy to inflict 20% unemployment and a protracted recession on the US economy to slay inflation. While we can only hope this time will be different, it is hard to know exactly why it should be. 

The second horseman is hovering just across the Atlantic. The timing of the war in Ukraine for the Eurozone economy could not be worse. Having dealt with the eurozone financial crisis, then the refugee crisis, and finally the covid 19 pandemic, thanks to the sword of President Vladimir Putin now the second largest economic block on earth is facing an energy crisis. With the European Commission estimating that inflation is reaching 7.4%, almost entirely on the back of inflated energy prices from a bellicose Russia, the economy is facing yet further headwinds. 

President Putin knows that at least in this battle, he holds all the cards. Europe continues to be almost entirely dependent on Russian gas. The longer the war goes on, the higher gas prices go, ergo the more funds flow to his coffers to spend on Russian war machine. European consumers are becoming desperate for some respite, with recession looking all but likely. Be-devilled with supply chain snafus and a smaller labour force than pre-pandemic, Post-Brexit Britain is facing even an even more extreme cost of living crisis. 

Closer to home, the third horseman – the now all but certain global food crisis and ensuing famine – will be felt most acutely in emerging markets such as South Africa. As Mark Heywood has eloquently written in the Daily Maverick, severe acute malnutrition and under-nutrition already affects millions of children in South Africa every year. Worryingly, due to the war in Ukraine, this is about to get much worse. Wheat futures are up 55% year to date, their highest levels ever. Antonio Guterres, secretary general of the United Nations, said last week that the conflict in Ukraine, on top of existing price pressures, “threatens to tip tens of millions of people over the edge into food insecurity followed by malnutrition, mass hunger and famine”.

Finally, from being the posterchild for breakneck economic growth, China has now become the final and potentially most unknowable harbinger of doom for the global economy. Economists are increasingly worried about what lies ahead for the Covid 19 plague afflicted Chinese economy, which now represents almost one fifth of global output. With lockdowns now shutting down vast tracts of its manufacturing base it remains to be seen what impacts will be felt by global supply chains. As ships queue outside the massive exporter ports of the Pearl River Delta and Shanghai, recent economic data out of China has been dismal. Retail sales are sharply down, industrial activity is shrinking, while unemployment is mounting.

High commodity prices, soaring energy prices, sharply higher food prices and slowing aggregate demand create a uniquely complex context for the South African economy. A global recession is looking increasingly hard to avoid. But while the economic effects of this are becoming painfully apparent, the geopolitical and social implications are only beginning. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.