The global economy, largely derailed by the war in Ukraine, is expected to grow by only 3.1% this year, compared to the 4% forecast in January, according to the latest UN report on the situation and the World Economic Outlook (WESP).
The mid-term forecast reveals how the conflict has upended the fragile economic recovery from the Covid-19 pandemic, causing a humanitarian crisis in Europe, soaring food and commodity prices, and exacerbating inflationary pressures.
Global inflation is also expected to reach 6.7% this year, double the average of 2.9% recorded between 2010 and 2020, with sharp increases in food and energy prices.
Guterres: Quick action is crucial
“The war in Ukraine – in all its dimensions – is triggering a crisis that is also devastating global energy markets, disrupting financial systems and exacerbating the extreme vulnerabilities of the developing world,” said the United Nations Secretary-General, during of his intervention.
“We need quick and decisive action to ensure a steady flow of food and energy in open markets, lifting export restrictions, allocating surpluses and reserves to those in need, and tackling rising food prices to calm market volatility,” added António Guterres.
— UN News (@UNinfo) May 18, 2022
The deterioration in growth prospects concerns the world’s largest economies – the United States, China and the European Union – as well as the majority of other developed and developing economies.
Rising energy and food prices are particularly affecting developing economies that import commodities, and the outlook is worsened by growing food insecurity, particularly in Africa.
Energy shock in Europe
The WESP report, published by the United Nations Department of Economic and Social Affairs (UN DESA), examines how the effects of the war in Ukraine affect different regions.
The invasion of Russia, which began on February 24 and caused tragic loss of life and a crisis with more than six million refugees alone, has also taken a heavy toll on the economies of both countries.
Neighboring economies in Central Asia and Europe, including the European Union (EU), are also affected.
Rising energy prices came as a shock to the EU, which imported almost 57.5% of its total energy consumption in 2020. Economic growth is forecast to be only 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, and a sudden stop in flows is likely to lead to higher energy prices and inflationary pressures.
EU member states in Eastern Europe and the Baltic region are badly affected as they are already experiencing inflation rates well above the EU average, the report says.
The woes of inflation
In developing and least developed countries (LDCs) around the world, high inflation reduces real household income.
This is particularly the case in developing countries, where poverty is more widespread and wage growth remains limited, while budget support to mitigate the impact of rising oil and food prices is limited. .
Rising food and energy costs are also impacting the rest of the economy, posing a challenge for an inclusive post-pandemic recovery, as low-income households are disproportionately affected.
In addition, “monetary tightening” by the United States Federal Reserve, the country’s central banking authority, is also expected to drive up borrowing costs and worsen financing gaps in developing countries, including developing countries. LDCs.
“Developing countries will need to prepare for the impact of the Fed’s aggressive monetary tightening and put in place appropriate macro-prudential measures to stem sudden capital outflows and boost productive investment,” said Hamid Rashid, Head of the Department. UN DESA Global Economic Monitor and lead author of the report.
Climate actions questioned
The war is also taking place at a time when global carbon dioxide (CO2) emissions are at an all-time high.
Also, rising energy prices will also impact global efforts to combat climate change. With countries looking to boost their energy supply amid high oil and gas prices, the report predicts that fossil fuel production is expected to increase in the near term.
At the same time, high prices for nickel and other metals could hurt the production of electric vehicles, while rising food prices could limit the use of biofuels.
“However, countries can also address their energy and food security concerns – highlighted by the crisis – by accelerating the adoption of renewable energy and increasing yields, thus bolstering the fight against climate change,” said Shantanu Mukherjee, Director of Economic Policy and Analysis at UN DESA.