AFP, Paris :
The world economy’s fragile recovery from the Covid-induced crisis is now threatened by Russia’s war in Ukraine and soaring commodity prices.
Here are four questions regarding the risks to global GDP:
“The war happened right at a time when Europe and the US had a recovery that was going really well. Projections in Europe were among the highest … (in) the last 20 years,” said Jacob Kirkegaard, resident senior fellow with the German Marshall Fund of the United States in their Brussels office.
In just two weeks, the war has had a ‘material impact’ on the economy, European Central Bank chief Christine Lagarde said Thursday, revising the growth outlook for the eurozone to 3.7 per cent for 2022, from 4.2 per cent forecast in December. The war and sanctions, which include a US ban on Russian oil imports, are raising prices of energy and other key commodities like wheat, fertilisers and metals to surge, International Monetary Fund chief Kristalina Georgieva said. That comes “on top of already high inflation,” Georgieva said. “We got through a crisis like no other with the pandemic. We are now in an even more shocking territory.”
Credit rating agency S&P has cut its projection for global growth this year to 3.4 per cent — a decline of 0.7 percentage points over its earlier forecast due to the expected slump in Russia’s sanctions-hit economy and rising energy costs. Moreover, the cost of hosting Ukrainian refugees and budgetary aid will cost the European Union 175 billion euros ($192 billion), economist Jean-Pisani Ferry from the Paris-based Bruegel Institute think-tank said. “I don’t think that global economy will go into a recession,” said Kirkegaard. But he warned of the threat from stagflation — persistently high inflation combined with high unemployment and stagnant demand.
Inflation has been rising worldwide for a year — due to Covid-linked disruptions in supply chains, leading to a spurt in the prices of raw materials which have raised production costs. The war has sent oil and gas prices soaring, threatening to worsen inflationary pressure. Federal Reserve Chair Jerome Powell told the US Congress that every $10 hike in oil prices would impact growth by 0.1 percentage points and add 0.2 percentage points to inflation. The United States recorded 7.9 per cent inflation in February — a new 40-year high. “We are facing an oil shock, a gas shock and an electricity shock. This has never happened together,” said Thomas Pellerin-Carlin, director the Jacques Delors energy institute.
