semi-annual forecast shows how the conflict flipped a fragile economic recovery from COVID-19 pandemic, triggering a humanitarian crisis in Europe, driving up food and commodity prices, and exacerbating inflationary pressures.
Global inflation should also hit 6.7% this year, double the average of 2.9% between 2010 and 2020, with food and energy prices soaring.
Quick action is critical: Guterres
“The war in Ukraine – in all its manifestations – is leading to a crisis that is also destroying global energy markets, destroying financial systems and exacerbating the extreme vulnerability of the developing world,” the UN said in a statement. General Secretary António Guterres.
“We need quick and decisive action ensure a stable flow of food and energy in open markets by removing export restrictions, distributing surpluses and reserves to those who need them, and addressing rising food prices to reduce market volatility,” he added.
The downturn in growth prospects includes the world’s largest economies – the US, China and the European Union – as well as most other developed and emerging economies.
Higher energy and food prices are particularly hurting commodity-importing developing countries, and the outlook is exacerbated by deteriorating food security, especially in Africa.
Energy shock in Europe
A WESP report published by the United Nations Department of Economic and Social Affairs (DESA) examines how the spillover effects of the war in Ukraine are affecting different regions.
The Russian invasion began on February 24, and in addition to the tragic loss of life and the unfolding humanitarian crisis – with over six million refugees alone – it also required heavy losses for the economies of both countries.
Neighboring economies in Central Asia and Europe, including the European Union (EU), are also affected.
rising energy prices dealt a blow to the EU, which imported almost 57.5% of its total energy consumption in 2020. Economic growth is projected to rise by just 2.7% instead of the 3.9% forecast in January.
Nearly a quarter of Europe’s energy consumption in 2020 came from oil and natural gas imported from Russia. sudden stop of threads could lead to rising energy prices and inflationary pressures.
The report says that EU member states from Eastern Europe and the Baltic region have been hit hard as their inflation rate is already well above the EU average.
Problems with inflation
In the developing and least developed countries of the world (LDCs) high inflation the real income of the population is declining.
This is especially the case in developing countries, where poverty is more prevalent and wage growth remains limited, and fiscal support to cushion the impact of higher oil and food prices is limited.
Rising food and energy prices also have a knock-on effect on the rest of the economy. presents a challenge for inclusive post-pandemic recovery as low-income households suffer disproportionately.
In addition, “monetary tightening” by the US Federal Reserve, the country’s central banking authority, should also raise borrowing costs and exacerbate financing gaps in developing countries, including the world’s LDCs.
“Developing countries need prepare for the impact of aggressive monetary tightening by the Fed and take appropriate macroprudential measures to stop the sudden outflow of funds and stimulate productive investment,” said Hamid Rashid, DESA Global Economic Monitor and lead author of the report.
Action to combat climate change questionable
The war is also unfolding at a time when global Carbon dioxide (CO2) emissions are at an all-time high, and rising energy prices will also affect global efforts to combat climate change. As countries look to expand energy supplies amid high oil and gas prices, the report predicts that fossil fuel production is likely to pick up in the short term.
Meanwhile, high prices for nickel and other metals could hurt electric vehicle production, and rising food prices could limit the use of biofuels.
“However, countries can also address their energy and food security concerns, brought to the fore by the crisis, by accelerating the deployment of renewable energy sources and efficiency gains, thereby strengthening the fight against climate change,” said Shantanu Mukherjee, Director of Economic Policy and Analysis, DESA.