The mid-year forecast reveals how the conflict has turned the fragile economic recovery upside down of the COVID-19 pandemic, triggering a humanitarian crisis in Europe, increasing the prices of food and raw materials, and exacerbating inflationary pressures.
Global inflation is also forecast to hit 6.7% this year, or double the 2.9% average over the 2010-2020 period, with sharp increases in food and energy prices.
Crucial Fast Action: Guterres
“The war in Ukraine, in all its dimensions, is triggering a crisis that is also devastating global energy markets, disrupting financial systems and exacerbating extreme vulnerabilities in the developing world,” said UN Secretary-General António Guterres.
“We need swift and decisive action to ensure a steady flow of food and energy in open markets, lifting export restrictions, allocating surpluses and reserves to those who need them, and addressing food price spikes to calm market volatility,” he added.
The downgrade in growth prospects includes the world’s largest economies (the United States, China, and the European Union), as well as most other developed and developing economies.
Higher energy and food prices are hitting developing economies that import commodities particularly hard, and the outlook is exacerbated by worsening food insecurity, especially in Africa.
energy shock in Europe
The WESP report, published by the UN Department of Economic and Social Affairs (DESA), examines how the fallout from the war in Ukraine is affecting different regions.
Russia’s invasion began on February 24 and, in addition to the tragic loss of life and the unfolding humanitarian crisis – with more than six million refugees alone – it has also demanded Heavy toll on the economies of both countries..
Neighboring economies in Central Asia and Europe, including the European Union (EU), are also affected.
The rising energy prices has taken a toll on the EU, which imported almost 57.5 percent of its total energy consumption in 2020. Economic growth is forecast to grow by just 2.7 percent, instead of 3.9 percent. 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 interruption of flows it is likely to lead to higher energy prices and inflationary pressures.
EU member states from Eastern Europe and the Baltic region are hit hard as they are already experiencing inflation rates well above the EU average, according to the report.
In the developing and least developed countries (LDCs) of the world, high inflation it is reducing real household income.
This is especially the case in developing countries, where poverty is more prevalent and wage growth remains limited, while fiscal support to lessen the impact of rising oil and food prices is limited.
Rising food and energy costs are also spilling over into the rest of the economy, which is presenting a challenge for inclusive post-pandemic recovery as low-income households are disproportionately affected.
In addition, the “monetary tightening” of the US Federal Reserve, the country’s central banking authority, will also increase borrowing costs and worsen financing gaps in developing countries, including the world’s LDCs.
“Developing countries will have to prepare for the impact of aggressive monetary tightening by the Federal Reserve and put in place appropriate macroprudential measures to stop sudden outflows and stimulate productive investment,” said Hamid Rashid, Head of DESA’s Global Economic Monitoring Branch and lead author of the report.
Climate Actions Challenged
The war is also taking place at a time when the Carbon dioxide (CO2) emissions are at a record level, and rising energy prices will also affect global efforts to address climate change. As countries seek to expand energy supplies amid high oil and gas prices, the report predicts that fossil fuel production is likely to rise in the near term.
Meanwhile, high prices for nickel and other metals may negatively affect the production of electric vehicles, while rising food prices may limit the use of biofuels.
“However, countries can also address their food and energy security concerns, which have arisen due to the crisis, by accelerate the adoption of renewable energy and increase efficiency, thus strengthening the fight against climate change,” said Shantanu Mukherjee, Director of Economic Analysis and Policy at DESA.