The United Nations Conference on Trade and Development (UNCTAD) report lowered its global economic growth projection for 2022 to 2.6% from 3.6% due to shocks from the war in Ukraine and changes in macroeconomic policies that put developing countries at particular risk.
The report says that while Russia will experience a deep recession this year, significant slowdowns in growth are expected in parts of Western Europe and Central, South and Southeast Asia. India was expected to grow by 6.7% in 2022 and this projection has been lowered to 4.6% by UNCTAD.
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The report indicates that some of the other economies in South and West Asia could benefit from the rapid growth in energy demand and prices, they will be hampered by adversities in commodity markets, in particularly food inflation, and will be further affected by inherent financial instabilities. India in particular will face constraints on several fronts: energy access and prices, commodity bottlenecks, trade sanctions reflexes, food inflation, tightening policies and financial instability, he said.
The report lowered US GDP growth from 3% to 2.4%. China will also see its growth decline to 4.8% from 5.7%. The report predicts a deep recession for Russia, with growth decelerating from 2.3% to -7.3%. The report says the Russian economy is facing tough external constraints imposed by the sanctions.
While Russia still exports oil and gas, and will therefore see offsetting revenue increases due to high prices, the sanctions severely limit the use of foreign exchange earnings for buying imports or servicing debt. . Russia will experience severe shortages of a wide range of imported goods, high inflation and a heavily devalued currency. While the state will likely act to cushion the shock and limit unemployment and the decline in household income, its capacity is limited.
Trade with China and some other partners will continue, but they will not be able to provide substitutes for the wide range of imported products that the Russian Federation currently does not have access to. Assuming sanctions remain in place until 2022, even if the fighting in Ukraine stops, Russia will experience a severe recession, he said. The report notes that a number of central banks in developing countries have also engaged in quantitative easing: the active purchase of bonds in the open market.
A small number of central banks in developing countries made purchases of private sector bonds, but purchases of public bonds were more widespread: central banks in India, Thailand, Colombia and South Africa Sud, among others, made purchases of government bonds. In the global monetary hierarchy, the place of a national currency is today determined less by the size of its domestic production base than by the size of its domestic financial sector.
The currencies of Brazil, Russia, India and China account for no more than 3.5% of the $6.6 trillion daily turnover in the foreign exchange markets, barely a tenth of the 44% of the US dollar, he said. UNCTAD said the ongoing war in Ukraine is likely to reinforce the monetary tightening trend in advanced countries following similar moves that began in late 2021 in several developing countries due to inflationary pressures, with spending cuts as well. provided for in future budgets.
UNCTAD fears that a combination of weakening global demand, insufficient policy coordination at the international level and high debt levels due to the pandemic could generate financial shock waves that could push some developing countries into a downward spiral of insolvency, recession and stunted development. The economic effects of the war in Ukraine will deepen the ongoing global economic downturn and weaken the recovery from the COVID-19 pandemic, UNCTAD Secretary-General Rebeca Grynspan has said.
Many developing countries have struggled to gain economic ground after the Covid-19 recession and are now facing strong headwinds of war. Whether this leads to unrest or not, deep social anxiety is already spreading. 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, straining household budgets and increasing production costs, while trade disruptions and the effects of sanctions are likely to have a deterrent effect on long-term investments. Coming just when the pandemic-induced disruptions appeared to be easing, the geopolitical crisis dealt a blow to domestic confidence.
The additional pressure from rising prices is intensifying calls for a policy response in advanced economies, including on the fiscal front, threatening a sharper-than-expected slowdown in growth, according to the UNCTAD report. Soaring food and fuel prices will have an immediate effect on the most vulnerable in developing countries, causing hunger and hardship for households that spend most of their income on food. But the loss of purchasing power and real spending will ultimately be felt by everyone.
The danger for many developing countries that rely heavily on imported food and fuel runs deeper, as rising prices threaten livelihoods, discourage investment and raise the specter of widening trade deficits, according to The report.