Economic Research Reports

Escalating geopolitical tensions, mounting global debt, and increasingly violent weather patterns have emboldened doomsayers to shorten the timeline for their apocalyptic predictions. The world is witnessing rising tensions among human factions, evident in conflicts such as the Israel-Palestine war, the Russia-Ukraine invasion, escalating India-Pakistan hostilities, and the growing confrontation between Israel and Iran. This might remind us that, it is difficult for us to unite until an external alien threat brings an existential crisis as portrayed in “independence day” movie. From an economic point of view, there is still room for us to excel and prosper, even though mounting global debt and the threat of nuclear annihilation hang over us like the sword of Damocles. The employment trends of the global population over the years reflect a journey from desperation to hope, highlighting both empowerment and the means of human sustenance. The emergence of artificial intelligence might reduce the number of employment but it could not replace humans as primary force behind all  production. In the ancient past the number of cows determine the wealth of person and in future it might be number of robots that determine wealth of person. The evolution from employment to empowerment is always a possibility, and trends in developed countries have shown that as societies progress, there is a natural shift from traditional employment toward an entrepreneurial spirit. It is interesting to notice that in developed European union, micro and small enterprises alone cover about half of all employment and contributes 66% of the total private sector employment. SMEs accounting for approximately 56% of the EU’s total GDP, it becomes evident that as countries progress toward developed status, the role of small and medium enterprises becomes increasingly pivotal in shaping a resilient and inclusive economy.

The role of inflation in modern economy is not a mere rise in prices but it is signal that reflects underlying economic dynamics, including demand and supply , monetary policy and consumer confidence. Governments and central banks have gained enough expertise for implementing inflation targeting measures. The countries have learned to manage inflation by managing exchange rate , inflation targeting, swift policy transmission , clear inflation band & guidance and stable macro fundamentals. From the present world economic scenario, only few countries are threatened with mounting inflation that gone out of control. Countries like Argentina, Lebanon and Sudan experiencing disastrous impact of inflation and it is mainly attributed to their poor management of macro-economic policies. These countries are facing severe stagflationary conditions and might collapse if there is no adequate measure to revamp the economy. Interestingly countries like USA, UK and European union are under the grip of mild stagflation and Pakistan is officially in stagflationary phase. However developed countries are learned enough to manage the macroeconomic policies and there are lot untapped buffer resources for their sustenance. And it is more difficult for developing countries like Pakistan and Sri Lanka to overcome the stagflation pressure.

According to institute of international finance, global debt is estimated to reach as new high of over $324 trillion in the first quarter of 2025.  The global GDP is estimated around $113.795 trillion and the debt is 2.85 times bigger than the global GDP. Hence it is time for all countries to address the issue of debt , if the debt is not utilized for generating promising productivity. It is also the time to look into the living standard of population and their ability to earn enough income for better living than mere survival. Neglecting human resources as the primary force of production may lead to hard-learned lessons in the future. If global attention shifts toward non-conventional energy, sustainable technologies, and enhancing standards of living, while keeping human potential at the core, we will unlock greater prospects for prosperity and collective well-being. From market perspective, last week  the behaviour stocks market and currency were more cautious in nature and commodities market captured most of market volatility. The below expectations of US consumer price index and sharp decline of Empire manufacturing Index spilled worries for US economies.  The impressive performance Canada housing starts signalling the strength of construction sector had fuelled more strength for  domestic economic momentum.

The endeavoring nature of the stock markets amid the shroud of uncertainties was evident for the last week. The US, European and Japanese stock market showed strong tendency for the continuation recovery momentum, while Chinese and Hong Kong market showed general weakness when it failed to exhibit the strength of European and US markets. The better performance  of giant companies all over the world had influenced the investors sentiments. In US , it is the magnificent seven companies that  triggered the positivity for market up moves. Interestingly south Korea stock markets also showed strong positive momentum influenced by the better performance of South Korean companies like Hyundai, Kia and SK innovations. The self-interest of  the countries to stay ahead in the troubled waters  were generally evident in their trade negotiation for addressing the trade tariff crisis. The general consensus for G7 countries to understand worries of US with respect to the undervaluation of yuan shows changing picture of polarization of countries with similar interest. The tug of war between Russia, China and North Korea on one side and US together with European countries on other side can significantly influence the global trade dynamics. The Asian counterparts show strong bond while addressing the looming crisis, while the union of US and European countries are more transient in nature which developed while addressing the tariff war. The main reason for this disparity is the lack of currency conflict in Asian region. On the other hand, weakening of dollar will always increase the safe haven appeal of euro and this trend is already evident in the currency market.

The geopolitical issues continue to haunt positive expectation of global investors. The tight grip Of Russian and Ukraine war continues its firm hold when Ukrainian forces conducted significant underwater drone attack over Russian air bases. The attacks and retaliations of warring countries should also be judged from an economic perspective. Isreal Palestinian war continues to unsettle the Arab nations even though they are not actively participating in the war. Every war has to analysed from its long-term socioeconomic impact. The primary concern is the humanitarian aid required support the victims and refugees. As per online sources, UN is seeking $53.2 billion for the recovery and reconstruction of Gaza and West bank over the next ten years. As per Reuters report[i], Israel spends around 30 billion for military conflicts in Gaza and Lebanon. As per online sources[ii],  US, EU and other allies have spent Over $287 billion in total on support of Ukraine. According to Reuters report, Russia spends up to $211 billion in equipping , deploying and maintaining its troops. All these figures show that , war requires mammoth spending that can drain the economic resources to great extent and can incur long lasting impact on inflation or it might lead to disastrous impact of hyperinflation.

The general tendency for rise in inflation is a fact but inflation figures published till now has not pressed the panic button . The quarterly GDP figure published by MOSPI in India at 7.4 % is satisfactory and the rising tendency shown for last three quarters can fuel optimistic feeling on Indian economy. On the other the GDP growth rate from US is disappointing and quarterly growth rate showed at -0.2 is disappointing. General sluggishness in manufacturing is mainly triggered by the on-going tariff war and it is evident from Chinese and US manufacturing PMI. It is evident that the shroud of uncertainty continues to haunt the world economy until removal looming crisis  .

[i] https://www.reuters.com/world/middle-east/israeli-war-spending-gaza-lebanon-tops-30-billion-2024-finance-ministry-2025-03-17/

[ii] https://www.rferl.org/a/ukraine-us-russia-aid/33337524.html