The Ukrainian War and the Global Recovery

UNCTAD, the United Nations’ World Trade Organization (WTO), has lowered its forecast for global economic growth in 2022 to 2.6% from 3.6% due to the war in Ukraine and changes in macroeconomic policies. in recent years and months. the biggest winners and losers in this scenario?

In the March 24 Trade and Development Report, UNCTAD says that while Russia will experience a deep recession this year, growth is expected to slow significantly in parts of Western Europe and Central, South and South Asia. from the South East.

According to Inthe report points out that the ongoing war in Ukraine is likely to intensify the trend of monetary tightening in advanced countries after similar moves that began in late 2021 in several developing countries due to inflationary pressures, with spending cuts also expected in future budgets.

The authors fear that a combination of weakening global demand, inadequate international policy coordination and rising debt levels due to the pandemic could create financial waves that could push some developing countries into a downward spiral. .

Nevertheless, Greek Finance Minister Christos Staikouras said last week that he did not “at this time” expect the Ukraine crisis to derail Greek economic growth.

The Greek economy is expected to grow by around 4.5% to 5% this year.

According to Greek bankers and leading economists, the growth rate in 2021 will eventually stand at 8.5%, well above the 4.5% predicted a year ago.

After registering a 9% economic fall in 2020, according to the Hellenic Statistical Authority, the recovery was seen as an encouraging sign by analysts.

This put Greece on track to continue healthy growth despite the war in Ukraine.

However, the COVID-19 pandemic of the past two years has already reduced the financial room for maneuver of developing countries and increased their indebtedness, and in addition they have to deal with rising fuel, food and fertilizer prices. ?

It’s a very difficult problem, said Rebeca Grynspan, secretary-general of the United Nations Conference on Trade and Development (UNCTAD), which helps developing countries integrate into the global economy.

To add to the problems, the cost of freight has soared 34% since Russia invaded Ukraine on Feb. 24, according to UNCTAD.

Transportation issues and global supply chain disruptions are also driving up costs and prices.

Developing countries, like Pakistan, which is already reeling from an unprecedented price hike, will not be able to cope without help and need solutions to their liquidity and debt problems, otherwise they run the risk of their economies collapsing partly because of high indebtedness. service levels, Grynspan said.

UNCTAD has recommended greater, more concessional and less conditional multilateral financial support to developing countries; immediate debt relief for Ukraine as well as the resumption of discussions on a multilateral mechanism that promotes the fair and orderly restructuring of the sovereign debt of developing countries during periods of severe financial stress; increased use of special drawing rights to supplement official reserves and provide timely liquidity to avoid severe deflationary adjustments.

He also recommended more efficient and less ad hoc swap agreements between central banks to support developing countries’ currencies and deal with financial crises, as well as sectoral policies such as price controls and subsidies, to combat supply-side pressures and rising inflation.

Even without lasting financial market disruptions, developing economies will face severe growth constraints. During the pandemic, their stocks of public and private debt have increased. And problems that disappeared during the pandemic, including high corporate indebtedness and rising household debt in middle-income developing countries, will resurface as politics tightens.

The war has put additional upward pressure on international energy and commodity prices, stretching household budgets and raising production costs, while trade disruptions and the effects of sanctions are likely to have a deterrent effect on long-term investment, said UNCTAD.

Petros Aramidis is a geopolitical analyst based in Athens.

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