Which crisis turns out to be more negative for citizens and for the economy in many countries: rising inflation, energy crisis or economic recession?
All of these crises can be interconnected. Inflation has been rising since 2021. In many countries, inflation has already hit double-digit levels in early 2022 and continues to rise (late 2022). In many countries, the escalation of the energy crisis and economic recession will occur at the end of 2022 and perhaps in 2023 both crises in specific configurations. The deepening of these crises could lead to stagflation in 2023. At present, different decisions are made in individual countries and different interventionist solutions are implemented. In many countries, governments today make difficult decisions about choosing to use specific anti-crisis state intervention instruments. The choice concerns, among others deciding which crisis should be mitigated to a greater extent: rising double-digit inflation, energy crisis or economic recession. On the one hand, central banks are raising interest rates as part of tightened monetary policy. However, commercial banks only slightly increase interest rates on deposits and deposits, arguing their strategy with excess liquidity in their finances. On the other hand, they are rapidly increasing interest rates on bank loans. Credits become more expensive and less accessible. For example, in Poland, sales of mortgage loans in August 2022 compared to August 2021 fell by as much as 3/4. During this period, the installments paid to banks by borrowers who took out long-term bank loans (mortgage or investment) in 2021 after record low interest rates and even before the start of interest rate increases by the central bank in Poland, i.e. the National Bank of Poland, increased, which began with October 2021. The scale of new investment projects launched by entrepreneurs operating in various production sectors and in the construction industry is also currently falling rapidly. More and more companies and enterprises limit the scale of new employment and consider the possibility of reducing employment in the coming quarters. More and more employees are afraid of dismissal. Therefore, there are more and more macroeconomic forecasts suggesting the possibility of a recession in the Polish economy at the end of 2022 or at the beginning of 2023. In view of the above, the central bank raises interest rates in order to curb the rise in inflation. The increase in inflation continues and the rising interest rates on bank loans are cooling down the economic processes and, consequently, may cause a deep downturn in the economy in the coming quarters. On the other hand, as part of a soft fiscal policy, the government, in view of the upcoming parliamentary elections (to be held in autumn 2023), continues to create, on the basis of constantly printed money, new support programs for citizens, subsidies, subsidies to rising fuel and energy prices, etc. Paradoxically, financial aid programs public policy implemented as part of the fiscal and budgetary policy of the state, which are becoming pro-inflationary factors, the government describes as the so-called Anti-Inflation Shields. Moreover, it is not appropriate to define these government financial support programs as implemented within the framework of budgetary policy, because they are carried out on the basis of printed money, which is introduced into the economy outside the budget through special purpose funds established and managed by Bank Gospodarstwa Krajowego and the Polish Development Fund. Thus, it is a mechanism of extra-budgetary introduction to the economy of additional, uncovered overprinted money, which is mainly used to finance current and investment goals. Due to this mechanism, the key debt ratios of the state finance system look much more attractive than they really are. Depending on which economic policy solutions will be applied to a greater extent under the Polish mix (tightened monetary policy and easy fiscal policy), the economic effects will differ and individual crises may develop to a different extent in the coming quarters. Therefore, depending on which anti-crisis instruments of economic and monetary policy will be used and to what extent it will either be greater inflation, or a more severe energy crisis for citizens and economic entities, or a deeper economic crisis, deeper economic recession, higher unemployment, higher negative various social effects, etc.
In view of the above, I would like to address the following question to the Distinguished Community of Researchers and Scientists:
Which crisis turns out to be more negative for citizens and for the economy in many countries: rising inflation, energy crisis or economic recession?
What is your opinion on this topic?
Please reply,
I invite everyone to the discussion,
Thank you very much,
Best regards,
Dariusz Prokopowicz
The energy crisis that brings inflation soaring across the world is getting worse every week, leaving stock traders with a challenge to figure out where to put their money.
But the impact of the Ukraine-Russia war is being felt across geographies. India, on its part, will be hit by a contagion of high energy prices, sticky inflation, subdued consumption, and weaker-than-expected corporate earnings, caution analysts. All of this, say, it would delay the credit revival in the economy by at least two-three quarters.
However, Inflation, usually, benefits the producers of products. One can say better profits are experienced since they can sell their products at higher prices. During inflation, investors and entrepreneurs receive added incentives for investing in productive activities. Hence, they receive better returns.
Once the producers receive the right investment, they create more goods and services. Hence, inflation leads to an increase in production of products/services.
Since production increases, there is an increased demand for the various factors of production, including manpower. Therefore, employment and income increases during inflation.
The major loss of human during Covid taught us a big lesson for preparedness but then whole world was able to cope up with the economic recession. The rapid increase in the price of every product was a challenge to every person.
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Résultats de traduction
Certainly, the energy crisis will increase inflationary tensions, here we talk about imported inflation. So I think it is the energy crisis that will be the most severe because the increase in energy prices that we have just seen will cause a slowdown in economic activity because of the increase in its prices.
The most lethal factor, imo, is rising inflation, second comes the badly managed energy sustainability crisis and on 3rd impact rank I see economic recession.
Unfortunately, this is in economic reality rather an event cycle than a linear event chain; the reversal of the economic growth spiral is a consequence of unwise monetary policy.
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By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
John Maynard Keynes
Energy crisis is most important since non-renewable sources of energy will get costlier with time.
Misusing energy and other resources exclusively by elite classes (including unnecessary social clashes and wars) are disappointing and creates economic problems like inflation and economic recession.
Any one of these crises could cause the collapse of society if allowed to worsrn. The problem is that because the downturns of the past 3 decades (IMO since JFK) have not been completely resolved. For example, the crisis in the economy of 2008 was being solved by Trump. Then Biden sent us back so now there are at least 3 economic type crises. Even severe disease outbreaks have occurred and past.
So, the real problem is that there are too many crises at the same time, caused by failing to resolve prior crises.
Indubitably, both energy crisis and recession have a great bearing on inflation. It seems the three are entwined. Therefore, as things stand right now, inflation is the main culprit in the economic scenario of all countries.
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