Pakistan’s economy is being hurt by this crisis and the government’s response to it or plans to respond to it. The International Monetary Fund (IMF) says that the growth of the world economy will slow from 6.1% in 2019 to 3.6% in 2022 and 2023. This is only about half of what it was in 2019. In 2022 and 2023, the average growth rate for advanced economies is 3.3% and 2.4%, respectively. The average growth rate for emerging and developing economies (E&DEs) is 3.8% and 4.4%, which are lower than the 6.8% growth rate in 2021.
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In 2022 and 2023, the world’s largest economy, the United States, is expected to grow by 3.7% and 2.3%, respectively, compared to a growth rate of 5.7% in 2021. The economies of the Eurozone are expected to grow by 2.8% and 2.3% in 2022 and 2023, respectively, compared to 2021, when they increased by 5.3%.
China Has The Second-Largest Economy In The World.
It is expected that its growth rate will slow from 8.1% in 2021 to 4.4% in 2022 and 5.1 % in 2023, making it the second-largest economy in the world. Because of the war and the sanctions, Russia’s GDP would drop by 8.5% in 2022 and 2.3% in 2023. In 2021, Russia’s GDP will grow by 4.7%. In 2022, Pakistan GDP is only expected to grow by 4%, which is less than in 2021, when it grew by 5.6 %. In 2023, however, it is expected to increase slightly, to 4.2 %.
We’ll talk about price changes next. Because of the lockdowns and the drop in aggregate demand, developed countries had 0.7% inflation, and their economies shrank by 3.1% in 2020. On the other hand, production in the E&DEs went down by 2%, but inflation stayed low at 5.2%. One reason why growth prices in rich countries and emerging and developing economies (E&DEs) moved differently is that inflation in E&DEs was driven more by supply than demand. To understand what the future holds for the global economy, you need to know the difference between these two ideas.
In 2022, inflation is expected to be 5.7% in advanced economies, and in 2023, it is expected to be 2.5%. In 2021, the number was only 3.1%. The number of E&DEs is scheduled to increase from 5.9% in 2021 to 8.7% in 2022 and 6.5 % in 2023. Because of this, both developed and developing countries should expect their economies to grow more slowly and their costs to go up this year.
When supply-side inflation, also called “supply shocks,” takes the place of demand-driven inflation, this kind of mix is inevitable. Most of the supply shocks we are seeing now are caused by the war in Ukraine. Demand-pull inflation started before Russia invaded Ukraine. It was caused by both the multibillion-dollar fiscal stimulus and the loose monetary policy of the Federal Reserve, which is the central bank.
Because of the epidemic, the economy went into a downturn, which required policies that grew the economy. When the economy stabilized and demand-driven inflation started to rise, the Federal Reserve raised the benchmark interest rate by 0.25 percentage points in 2020 and 0.50 percentage points in 2021. The Bank of England raised its prime interest rate by 0.25 percentage points. This was the first time in 13 years that it had done so.
Rate hikes are expected to continue for the rest of the year, which will cause FFI to leave many emerging and developing economies (E&DEs) and move to countries with more mature economies, like the US, UK, and others. As a result, many E&DE currencies will lose value, making inflation worse. Aside from the war in Ukraine and the return of the flu in China, which is the world’s biggest producer, this inflation will worsen supply-chain problems.
A rise in interest rates in the United States and the United Kingdom might slow down inflation caused by demand, but it won’t stop inflation caused by supply. Because of this, prices are expected to go up 7.7% (from 4.7%) in 2022, while growth rates are likely to slow. (a decrease of 3.7% from 2021, when it was 5.7%). The growth rate in the Eurozone will be a disappointing 2.8% in 2022, but inflation will be a high 5.3%. Growth will slow to 3.7% in the UK, but inflation will rise to 7.4% from 2.6% last year.
How Pakistan Has an Effect:
Like many other developing countries, Pakistan stands to lose a lot because prices are going up and development is slowing down. Most of Pakistan exports go to the United States, China, and the United Kingdom. If the economy keeps worsening, Pakistans trade growth may be limited by other important export markets, especially those in the Eurozone, like Germany.
In the first ten months of the current fiscal year, exports increased by 25.5%. Exports make up less than 9% of Pakistan GDP, so a drop there wouldn’t affect the country’s overall growth. But the economic growth rate could slow down a lot if import-controlling measures are put in place to fix the growing trade deficit, which is expected to reach $39 billion in FY22 (July-April). Pakistan buys more food and fuel than it makes, so its import costs will almost certainly go up.
From $5.34 billion and $6.67 billion, respectively, in FY21, food and energy imports went up to $6.30 billion and $12.66 billion in FY22 (July–March). Interest rate increases in significant economies like the US are likely to put downward pressure on the domestic currency, which has dropped sharply in recent months because of a growing current account deficit, political uncertainty, and a stalled International Monetary Fund credit programme.
Due to a drop in the currency’s value, the cost of imported raw materials, parts, and equipment will go up. Consumer prices will go up by 12.7% from March 2021 to March 2022. In its last Monetary Policy Statement, the SBP raised the benchmark interest rate to 12.25%. This is because inflation is what determines interest rates.
Since the currency’s value is going down and interest rates are going up, it will cost more to pay off the public debt. This is the essential part of what the government spends money on. The budget deficit will get more prominent because of this. As long as the government keeps giving money to energy companies, the deficit will keep getting bigger.
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