Economy – War in Ukraine: a crushing blow to poor countries

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Developing countries are suffering the economic consequences of the war in Ukraine, risking provoking social discontent.

Due to the blockage of agricultural production in Ukraine and Russia, the war should, in its consequences, hit poor countries the hardest.

Reuters

The war in Ukraine, which has become synonymous with rising commodity prices, is creating a new shock wave in developing countries already weakened by the pandemic, raising fears at the UN of significant social discontent.

In a new report, the United Nations Conference on Trade and Development (UNCTAD), the economic think tank of the United Nations, warns of the massive economic damage that conflict is already causing in many parts of the developing world.

“Many developing countries have struggled to ensure a dynamic economic recovery from the Covid-19 recession and are now facing strong headwinds of war. Whether it leads to unrest or not, deep social unrest is already spreading,” said UNCTAD Secretary-General Rebeca Greenspan. According to the UN, grain prices have already exceeded those of the beginning of the “Arab Spring” and the food riots of 2007/2008.

“Hurricane Hunger”

Due to the blockade of agricultural production in Ukraine and Russia, the war will hit the poorest countries hardest, United Nations Secretary-General António Guterres warned ten days ago, warning against “a hurricane of hunger and the collapse of the world food system.”

UNCTAD fears that the combination of weakening global demand, lack of international policy coordination and high levels of debt due to the pandemic could trigger “waves of financial shock that could push some developing countries into a downward spiral of insolvency, recession and developmental delays.”

Overall, according to Rebecca Greenspan, “the economic impact of the war in Ukraine will exacerbate the current economic downturn around the world and weaken the recovery from the Covid-19 pandemic.” In its report, Cnuced cut its global growth forecast to 2.6% for 2022 from its original forecast set at 3.6% in September.

Pointed gun at the economy

Global growth in 2022 will be “slower, more uneven and more fragile than we expected,” according to the report, which explains that the new estimates take into account the war in Ukraine, as well as “tighter macroeconomic policies in advanced economies.”

In mid-March, UNCTAD had already warned of a rapidly deteriorating global economic outlook in the wake of the war in Ukraine, driven by, among other things, rising food, fuel and fertilizer prices, rising financial volatility, complex reconfiguration of global supply chains and rising trade costs.

Russia, which has been heavily sanctioned for invading Ukraine, should experience a deep recession (-7.3%) this year, according to Cnuced. A significant slowdown in growth is also expected in parts of Western Europe and Central, South and Southeast Asia.

Monetary tightening trend

The report notes that the war is putting additional upward pressure on global energy and commodity prices, weighing on household budgets and raising production costs, while trade disruptions and the effects of sanctions could dampen long-term investment.

According to UNCTAD, the conflict is likely to increase the trend towards monetary tightening in developed countries after similar measures were taken in late 2021 in a number of developing countries due to inflationary pressures, and spending cuts are planned in future budgets.

The measures are being taken “although inflation has not yet led to sustained wage growth, making the threat of a wage-price spiral unwarranted,” she laments. “The global economy, literally and figuratively, is under attack. Ending the war in Ukraine, rebuilding its economy, and reaching a lasting peace deal must be priorities,” the report emphasizes.

(AFP)

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