The warning bells have been ringing since 2020. And anyone who hasn’t seen the writing on the wall hasn’t been paying attention. A global recession is not coming. It is already here.
In the United States, the economy has contracted for two quarters. And while the market is still adding jobs at an impressive rate, simply replacing those lost during the pandemic, most other indicators point to a very troubling road ahead. The consumer price index has climbed dramatically while production has stalled. The S&P 500 has fallen 25% since January, and long-term treasury yields are down considerably.
Echoes of these disturbing trends are reverberating across every major economy. A myriad of factors has converged to create the precarious situation in which the world now finds itself, the least of which is the pandemic.
But as dire as the looming economic situation is, the global recession is not the biggest problem we face. Rather, it is our failure to acknowledge it. We seem to be repeating the mistakes of the pandemic when half the world was determined to deny the crisis as it unfolded, the symptoms manifesting differently across the planet.
The Unequal Effects of the Unfolding Global Recession
In some countries, national banks are struggling to control steep inflation as the cost of living has gone through the roof. Many developing economies, over-dependent on foreign loans, are being forced to either devalue their currencies, abandon the US Dollar, or face bankruptcy. Third-world debt is critical in determining how the global recession will affect different countries and regions.
We have an example of how not to avoid disaster in Sri Lanka, where the pandemic exacerbated an already explosive social, political, and economic situation. The country’s massive foreign debt, unsustainable trade gap, food and fuel shortages, and fiscal mismanagement culminated in civil chaos and the government’s total collapse earlier this year, leaving it’s future uncertain.
Unfortunately, we see dozens of countries in South America, Sub-Saharan Africa, and Central Asia ignoring the warning signs and following Sri Lanka’s lead. Argentina and Egypt are in danger of joining a growing list of countries that have already defaulted on their debt as rising interest rates, low foreign currency reserves, and inflation force them to the precipice of economic collapse.
Many developed economies are not taking responsible steps to avoid a global recession. The United States continues to spend like there is no tomorrow, believing it can simply print its way out of the staggering debt they have carried from year to year. As they should have learned from Germany in the 1920s and, more recently, Zimbabwe, you cannot print your way out of debt.
The US-China trade war has been a major catalyst in sparking this recession, taking an estimated $550 billion out of the global economy. Russia’s invasion of Ukraine has had nearly as big an impact as it has disrupted global food and fuel supplies. The pandemic and its decimation of Small and Mid-sized Enterprises (SMEs) around the world compounded the issue.
SMEs are the lifeblood of most third-world economies. Some estimates suggest that more than half of SMEs around were forced out of business by the lockdowns and restrictions of the pandemic. Their closures have resulted in massive debts at a global level, followed closely by the fact that third-world countries are more heavily in debt paying for their vaccines.
China’s rigid zero COVID policy has restricted its powerful economy from a full recovery, closing major manufacturing hubs like Shenzhen and Tianjin. As the world’s second-largest economy struggles, its slowed growth has already impacted US trade numbers, worsening the global economic outlook. This is likely to end up having a domino effect across the third world, particularly in countries dependent on Chinese production and the Belt and Road Initiative.
All these factors combine into a perfect storm. Those who have been paying attention know the question we should be asking is not, “Are we in a global recession?”, or “Will we be in a recession next year?”. Rather, we must be asking, “How will the global recession impact my organization, and how can we prepare for it?”.
Preparing for the Next Global Recession
Unlike the last major global depression in the 1920s, the effects of the next crisis will not be uniform but rather regional, with even neighboring countries having vastly different experiences.
The social, political, and economic consequences will be devastating in some places and moderate in others. But no single economy will be untouched.
The world is a very different place than it was a century ago. The fact that the global population has burgeoned from 2 billion in 1927 to 8 billion today is a critical element. As large numbers of the younger generation enter the workforce to find no jobs available to them, the social and political fallout will be huge.
But we can find a silver lining in the fact that the internet economy, e-commerce, and its corresponding industries will help soften the blow, particularly in emerging markets.
The gradual switch to sustainable systems and the zero pollution targets of the auto industry, where most countries are committing to electric vehicles within 20 years, is another positive factor that will help drive innovation and change. But the world will experience major destabilization as populations come to terms with the new norm, new era, and new beginning.
The next era will dawn within the next five to 10 years. It will herald a new world in which entrepreneurship is a salvation. Traditional employment will be replaced by the creator economy, a marriage between entrepreneurs, e-commerce, and creators. India is poised to drive this new paradigm forward.
Businesses need to explore the e-commerce utilization and digitalization prospects of their industry. Every industry has the potential for digitalization. Businesses that focus on investment and development in this area will position themselves for success in the new era.
Finding an online specialization is critical. In the past, classical marketing involved advertising, pounding the pavement and finding regional clientele. Today, it is about pounding the keyboard. Developing sexier terminology, an online persona with a distinct look, style, and feel.
Reinvent your business for a new, younger demographic. Reach out to younger clientele, which is getting younger by the day, with Gen Z expected to account for 62% of social commerce by 2025. As weird as it may seem, the younger clientele is looking for older things, having a strong appreciation for vintage and nostalgia as well as sustainability and social inclusion.
Making up more than a quarter of the world’s population, the 2.5 billion Gen Zers are dominating the market. Their wants and tastes will drive the new global economy, just as they are currently driving the electric vehicle market.
Companies must also hire more Gen Zers. Organizations that create a bridge to that generation and give them a path to the jobs, products, and services they want will set themselves up for success in the new era.
This has been my clarion call. I have seen this moment coming and listened to the approaching rumble of the trampling of hooves. Now, the herd is upon us. Now is the time.
The new era is not coming. It’s here.
Vijay Eswaran is an entrepreneur, speaker, and philanthropist. He is the Founder and Executive Chairman of the QI Group of Companies, a multi-business conglomerate with headquarters in Hong Kong, offices in more than 25 countries, and customers in over 100 countries. Eswaran is also the author of Two Minutes From the Abyss.
By Vijay Eswaran