Middle East container ports are the most efficient in the world
According to the UN’s latest report on the World Economic Situation and Prospects (WESP), released on Wednesday.
The mid-year forecast reveals how the conflict has disrupted the fragile economic recovery of the COVID-19 pandemic, triggering a humanitarian crisis in Europe, driving up food and commodity prices and exacerbating inflationary pressures.
Global inflation is also expected to reach 6.7% this year, double the average of 2.9% over the 2010-2020 period, with sharp increases in food and energy prices.
Crucial early 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 the extreme vulnerabilities of the developing world,” said the UN Secretary General, Antonio Guterres.
“We need quick and decisive action ensuring a steady flow of food and energy in open markets, lifting export restrictions, allocating surpluses and reserves to those in need and tackling increases in food prices to calm market volatility,” he added.
The deterioration in growth prospects concerns the world’s largest economies – the United States, China and the European Union – as well as the majority of other developed and developing economies.
Rising energy and food prices are particularly affecting developing economies that import commodities, and the outlook is worsened by worsening food insecurity, particularly in Africa.
Energy shock in Europe
The WESP report, published by the United Nations Department of Economic and Social Affairs (DESA), examines the impact of the fallout from the war in Ukraine on different regions.
The invasion of Russia 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 delivered a shock to the EU, which imported nearly 57.5% of its total energy consumption in 2020. Economic growth is expected to grow by only 2.7%, down from 3.9% scheduled for January.
Almost a quarter of Europe’s energy consumption in 2020 came from oil and natural gas imported from Russia, and a sudden stoppage of flows will likely lead to higher energy prices and inflationary pressures.
EU member states in Eastern Europe and the Baltic region are badly affected as they are already experiencing inflation rates well above the EU average, according to the report.
The woes of inflation
In developing and least developed countries (LDCs) around the world, high inflation reduces real household income.
This is particularly the case in developing countries, where poverty is more widespread and wage growth remains limited, while fiscal support to mitigate the impact of rising oil and food prices is limited.
Rising food and energy prices are also having an impact on the rest of the economy which is present a challenge for an inclusive post-pandemic recovery as low-income households are disproportionately affected.
In addition, “monetary tightening” by the Federal Reserve in the United States, the country’s central banking authority, is also expected to increase borrowing costs and worsen financing gaps in developing countries, including LDCs.
“Developing countries should prepare for the impact of aggressive monetary tightening by the Fed and put in place appropriate macroprudential measures to stem sudden outflows and boost productive investment,” said Hamid Rashid, head of DESA’s global economic monitoring division and lead author of the report.
Climate actions questioned
The war is also taking place at a time when the Carbon dioxide (CO2) emissions have reached an all-time high, and rising energy prices will also impact global efforts to combat climate change. As countries look to boost their energy supplies amid high oil and gas prices, the report predicts that fossil fuel production is expected to increase in the near term.
At the same time, high prices for nickel and other metals could hurt the production of electric vehicles, while rising food prices could limit the use of biofuels.
“However, countries can also address their energy and food security concerns – brought to the fore due to the crisis – by accelerate the adoption of renewable energy and increase efficiency, thereby strengthening the fight against climate change,” said Shantanu Mukherjee, director of economic policy and analysis at DESA.