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Tough Times ahead for the Global Economy

The fact that capitalism now covers the whole world shows that there is no economy that can stay out of the way and balance the crisis. This is why the global crisis has the potential to turn into a cyclical crisis. If it turns into such a type of crisis, it can become an inextricable situation. For the first time, capitalism, which lost its flexibility as it grows and spreads, seems to be close to collapse for the first time.

Figure 1: The world has not learned the lessons of the financial crisis. Luca D'Urbino (2018).

The first stage of the global crisis was the US crisis, while in the second stage other developed economies also entered the situation. In the third stage, the developing economies also entered the crisis, and thus the entire global system was in crisis. Today, we are in this third stage of the global crisis, and the emerging economies, which had stabilized the system in previous years, are also in crisis.

Developed economies seem to be in an even more difficult situation today as they could not get out of the troubles they entered with the global crisis, despite the fact that 14 years have passed, the money supply has been increased to incredible levels, and debt burdens have been brought to an almost unbearable level by giving great support to the economy from the budget. The table below shows the current indicators of the largest developed economies.

Figure 2: Heatmap - Economic Indicators by Country. (

When the growth data is analyzed quarterly rather than annualized as here, one can see that stagflation has almost entered in countries other than the United Kingdom, USA, Australia, South Korea, and Canada, and in some of them, recession has been reached. In all countries except Japan, especially Spain, the USA, Italy, Canada, and Germany, inflation is in the phase of getting out of control. Developed countries were in the comfort of not experiencing inflation even though they printed money until a year ago. Today, the outlook has completely changed. Inflation, which they made money from developing countries with the money they exported by printing reserve money, is now returning. Developed economies are now faced with the choice of growth or inflation. If they do not tighten monetary policy and do not increase interest rates, inflation will rise, and if they do tighten monetary policy and increase interest rates, growth will decrease and even a recession will occur. It is very important to compare this period with the past period in determining economic policies and developing economic strategies. These countries seem to be relatively comfortable with unemployment as of today, but if they engage in monetary tightening and interest rate increases, unemployment rates will inevitably increase with the falling growth.

Figure 3: Governments must beware the lure of free money. Luca D'Urbino (2020).

The budget balances of developed economies reflect a complete disaster. There is no developed country that can meet the 3 percent Maastricht criterion, which is generally accepted as the ceiling. The US, UK and Spain are at historical record levels. Germany looks the closest to ideal. The budgets have been completely dispersed, especially with the high public expenditures and tax cuts made during the pandemic period. On the other hand, there is no developed country with a current account deficit problem except the USA and the United Kingdom.

The indicator that most clearly reflects the heavy damage caused by the global crisis is undoubtedly the public debt burden (public sector debt stock / GDP.) If we exclude Australia and South Korea (perhaps Germany, as well), we can see that all developed economies are literally in a swamp of public sector indebtedness. This shows that the possibility of keeping the system afloat by borrowing is running out. It is ironic that developed economies have become countries that need to be rescued, almost 40 years after the Braddy Plan, which was put into practice to solve the debt problem of Latin American economies, which started to cause major problems in the 1980s.

Figure 4: Condemned to Repeat the History of Bank Failures. Claire Merchlinsky (2019).

After the global crisis began, the USA, Eurozone, Japan, and the UK turned to interest rate cuts and monetary easing (Hausken & Ncube, 2013). In this way, they aimed to keep their economy alive. The biggest risk of this approach was that inflation would take its toll. The aforementioned economies overcame this problem with the freedom of capital movements. The money supply they increased was not used internally, and turned to high-yielding developing countries in order to earn more interest income through mutual funds. Thus, inflation was prevented from affecting developed countries. As the economies improved over time, a gradual reduction of money supply was planned with the implementation of monetary tightening and interest rate hikes. Apart from the fact that the Covid 19 pandemic upset these plans, it also caused developing countries to take heavy blows and fall into trouble (Qader, 2022).

When inflation rates are analyzed, Saudi Arabia, China, and Indonesia seem to be uneventful in inflation. On the other hand, Turkey and Iran are moving towards hyperinflation. Russia managed to turn inflation, which approached 20 percent after the war started, down by the central bank's increase in interest rates to 20 percent. In terms of unemployment, although South Africa and Turkey, which have high unemployment problems, seem to be problematic, it should not be difficult to predict that unemployment will begin to be a problem in all countries if the decline in growth continues. The countries with the most serious budget deficits are Saudi Arabia, Iran, India, and South Africa. It is not easy to find the answer to the question of how Saudi Arabia has such a budget deficit despite itslarge oil reserves and the high oil prices, and despite Iran's inability to sell its oil easily due to the embargo. The current account balance is perhaps the most unproblematic for developing countries. Russia, South Africa, Mexico, China, and Indonesia have a current account surplus, while others have a current account deficit. If we accept the 60 percent ceiling (Maastricht criterion) as the correct threshold for the public debt burden, we can say that the problematic countries are Brazil, India, South Africa, and China. From the preceding exposition of data, what is summed up is that developing countries are now moving towards serious difficulties, although not as much as developed countries.

Figure 5: We can’t go back to normal’: how will coronavirus change the world. Nathalie Lees (2020).

The crisis, which first started as a financial crisis in the USA in 2008, then spread to the real sector and globalized, caused serious economic problems all over the world (Dullien et al., 2010; Rahman et al., 2021). These problems were tried to be solved by increasing the money supply of developed countries, that is, with the monetary expansion and low-interest approach. This approach appeared successful as long as it did not create inflation. However, before there was a chance to withdraw the minted coins, a series of troubles arose and the inflation-creating process began.

With the Covid 19 pandemic that started in China in 2020 and spread all over the world, this time the problem of supply chain breakage emerged (Ruan et al., 2020). The invisible parts of this chain include the product sales process, stock management, material purchasing, distribution process planning, and services to customers (Karmaker et al., 2021). The Covid 19 outbreak disrupted this chain; It caused many problems, from the fact that the product could not be offered where it was demanded, that is, from the lack of supply, to the increase in the price of the product and even the decrease in its quality (Jackson, 2021). This breakout has a significant impact on the large jumps in commodity prices. There are, of course, many reasons why economies come here: The population has increased a lot, neoliberalism's unruly profit-driven approaches, ethical values ​​are eroded, growth is above everything else, the deterioration of the environment, the effect of the Covid 19 epidemic, etc.

The ups and downs in the prices of all energy resources, especially oil and natural gas, during the period turned into serious increases with the war of Russia to invade Ukraine. These increases caused the production to be hit as well, and thus the price increases, which were already caused by the supply chain break, to find support. These events have affected many factors and developing countries becoming part of the global crisis as well. All developing countries, especially China, are now both under the influence of the global crisis and in the position of the influence of the crisis. If we summarize all these events and make predictions from them, we can say that the global system seems to be under serious threats today.

Figure 6: Capitalism at Bay. Anonymous (2018).

The global crisis, which has been going on for 14 years, stands before us as the most severe crisis that capitalism has faced so far. The system, which chose to postpone the problem by monetary expansion and lowering the interest rate, has become much more severe. These events caused or triggered many events today. Both in developed and developing countries, the demand remains alive and keeps the economies afloat with effects such as wealth effect, increased demand, and runaway from money. However, the capitalist system, which has now completely turned into a bubble, cannot continue like this forever. For this reason, very serious consequences can occur. Unfortunately, much more difficult days await the world.

Bibliographical References

Dullien, S., Kotte, D. J., Márquez, A., & Priewe, J. (2010). The financial and economic crisis of 2008-2009 and developing countries. UNCTAD/GDS/MDP/2010/1, United Nations Publication.

Guan, D., Wang, D., Hallegatte, S., Davis, S. J., Huo, J., Li, S., ... & Gong, P. (2020). Global supply-chain effects of COVID-19 control measures. Nature human behaviour, 4(6), 577-587.

Hausken, K. (2014). In Quantitative easing and its impact in the US, Japan, the UK and Europe. essay, Springer.

Jackson, J. K. (2021). Global economic effects of COVID-19. Congressional Research Service.

Karmaker, C. L., Ahmed, T., Ahmed, S., Ali, S. M., Moktadir, M. A., & Kabir, G. (2021). Improving supply chain sustainability in the context of COVID-19 pandemic in an emerging economy: Exploring drivers using an integrated model. Sustainable production and consumption, 26, 411-427.

Qader, A. N. (2022). COVID-19 the Cause of Development Crisis: A Theoretical Conceptual Framework for the Impact of COVID-19 as a Cause of Development Crises in Some Developing Countries. Polytechnic Journal of Humanities and Social Sciences, 3(2), 48-62.

Rahman, K. H., & Taraqqi-A-Kamal, A. (2018). Term Paper (Doctoral dissertation) Bangladesh University of Professionals).

Visual Sources

Figure 1: D'Urbino, L. (2018). The world has not learned the lessons of the financial crisis. The Economist. [Photo]. Retrieved from

Figure 2: Anonymous (2022). Heatmap - Economic Indicators By Country. Trading Economics. [Photo].

Figure 3: D'Urbino, L. (2018). Governments must beware the lure of free money. The Economist. [Photo].

Figure 4: Merchlinsky, C. (2019). Condemned to Repeat the History of Bank Failures. The Economist. [Photo]. Retrieved from

Figure 5: Lees, N. (2020). We can’t go back to normal’: how will coronavirus change the world. The Guardian. [Photo]. Retrieved from Figure 6: Anonymous (2018). Capitalism at Bay. The Economist. [Photo]. Retrieved from


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Hamit Can

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