NEW YORK
The global economy is expected to grow by only 3.1 percent this year, down from the 4.0 percent projected in January, largely derailed by the war in Ukraine.
The UN’s latest World Economic Situation and Prospects (WESP) report stated this. The mid-year forecast reveals how the conflict has upended the fragile economic recovery from the Covid-19 pandemic, sparking a humanitarian crisis in Europe, surging food and commodity prices, and exacerbating inflationary pressures.
Global inflation is also set to reach 6.7 percent this year, or twice the average of 2.9 percent during the period from 2010 to 2020, with sharp rises in food and energy prices.
The downgrade in growth prospects includes the world’s largest economies – the United States, China, and the European Union – as well as the majority of other developed and developing economies. Higher energy and food prices are particularly affecting developing economies that import commodities, and the outlook is compounded by worsening food insecurity, especially in Africa.
The WESP report, published by the UN’s Department of Economic and Social Affairs (DESA), examines how the spillover effects of the war in Ukraine are impacting different regions.
Russia’s invasion began on 24 February, and in addition to the tragic loss of life and the unfolding humanitarian crisis – with more than six million refugees alone – it has also exacted heavy tolls on the economies of both countries. Neighbouring economies in Central Asia and Europe, including the European Union (EU), are also affected.
The rise in energy prices has dealt a shock to the EU, which imported nearly 57.5 per cent of its total energy consumption in 2020. Economic growth is forecasted to grow by only 2.7 per cent, instead of the 3.9 per cent projected in January.
Nearly a quarter of Europe’s energy consumption in 2020 came from oil and natural gas imported from Russia, and a sudden halt in flows is likely to lead to increased energy prices and inflationary pressures.
The EU member states from Eastern Europe and the Baltic region are severely impacted as they are already experiencing inflation rates well above the EU average, the report said.
In the world’s developing and Least Developed Countries (LDCs), high inflation is reducing the real income of households. This is especially the case in developing countries, where poverty is more prevalent and wage growth remains constrained, while fiscal support to lessen the impact of higher oil and food prices is limited.
Rising food and energy costs are also having knock-on effects on the rest of the economy which is presenting a challenge to inclusive post-pandemic recovery as low-income households are disproportionately affected.
Additionally, “monetary tightening” by the Federal Reserve in the United States, the country’s central banking authority, is also set to raise borrowing costs and worsen financing gaps in developing nations, including the world’s LDCs.
“The developing countries will need to brace for the impact of the aggressive monetary tightening by the Fed and put in place appropriate macroprudential measures to stem sudden outflows and stimulate productive investments,” said Hamid Rashid, DESA’s Chief of the Global Economic Monitoring Branch, and the lead author of the report.
