Once the world began to cautiously catch its breath after the lockdowns caused by the Covid-19 pandemic, whose effects everyone is still groaning about, the Russian-Ukrainian war came to turn the situation upside down, worsening the global economy and setting the world on the brink of another recession.
More than six months have passed since the war began, the largest armed conflict in Europe since World War II, and no one can predict its prospects. It does not seem that there is a clear horizon for ending the war by the end of this year, and it may continue for years in an extended conflict between Russia and its allies on one side and Ukraine and its allies on the other.
The war has had significant impacts on the political, economic, societal, and security sectors at the national, regional, and international levels.
It has affected food and fuel prices and changed the economic map around the world. It has made the largest importers of food and energy search for alternative sources to Russia and Ukraine, as the former is one of the largest suppliers of oil, gas, and minerals and the latter is one of the largest suppliers of wheat and corn. With the decline in the supply of these primary commodities, their prices have risen, and the greatest impacts have been on importers in Europe, the Caucasus and Central Asia, the Middle East and North Africa, and Sub-Saharan Africa.
The war has led to a slowdown in global economic growth this year. Expectations are also pessimistic regarding growth next year – a decrease of 2.3 to 2.5 per cent compared to the current year. The International Monetary Fund (IMF) last month lowered its expectations for the global economy for the fourth time in less than a year, as it expects growth of 3.2 per cent this year, down from 4.9 per cent in July 2021 and much less than the 6.1 per cent last year.
The situation of the European economies in particular is moving from bad to worse, as can be seen in the decline in the euro exchange rate and the rise in inflation rates driven by the increase in energy and food prices and the scarcity of production inputs. The Eastern European countries have been suffering from successive crises, ranging from the crisis over high prices to the crisis of displaced people from Ukraine. These countries have received about five million displaced Ukrainians, and dealing with this movement will exacerbate economic pressures in these countries.
The war has negatively affected energy and food security and threatened global supply chains. Although energy prices have stabilised as a result of the lower global demand for energy, the advent of winter will lead to an increase in demand for heating fuel, and this will likely make prices rise again. Although the earlier massive increase in food prices has been curbed as a result of the resumption of Ukrainian grain exports, the military operations taking place in Ukraine may lead to further impediments to these exports, leading to prices rising again.
The UN Development Programme (UNDP) has stated that some 71 million people worldwide fell into poverty due to soaring food and energy prices in the first three months of the war. The UN Food and Agriculture Organisation (FAO) also expects that 181 million people in countries worldwide will suffer from a food crisis this year.
The rise in oil prices – the Brent crude benchmark is currently approaching the $100 per barrel mark – has been leading to an increase in inflation worldwide. Global inflation is currently at record levels, reaching 10.1 per cent in the UK, its highest level in 40 years, 8.5 per cent in the US, and 7.5 per cent in the European Union.
In addition, the war has led to turmoil in the global financial markets, due to rises in interest rates. With the exception of the Chinese Central Bank, the tendency of central banks around the world to raise interest rates continues in order to try to control inflation. The possibility of a recession in global economies by 2023 increases as they do so.
Global tourism has become fraught with dangers since the outbreak of the war. The costs of international travel have also increased as a result of the rise in global fuel prices, the increase in inflationary pressures, and the rise in interest rates. The war is expected to slow the recovery of the already weak tourism sector after the Covid-19 pandemic, despite the fact that 22 countries lifted all forms of restrictions related to the pandemic in April 2022.
One of the direct results of the war on the environment has been the return of many countries, especially the European ones, to a dependence on fossil fuels such as coal in order to meet part of their energy needs, especially after Russia’s decision to stop the export of gas to Europe via the Nord Stream 1 pipeline for an indefinite period. Fossil fuels are one of the most polluting energy sources and are responsible for one third of global warming.
Economists are pessimistic about the situation of the global economy in the short and longer terms. In the short term, experts say that the global economy shows limited signs of recovery from the inflation shock caused by the war in terms of energy and food prices. The high rate of inflation will nullify the effects of raising interest rates in most countries around the world, they say. In the longer term, most economists expect to see recession or stagflation in the global economy.
The successive economic crises left by the war and the Covid-19 pandemic before it are having serious repercussions throughout the world, and this may motivate the people of the poorer countries in particular to rise up against their governments. It is likely that the chaos will spread to other countries, as the interdependence of the global economic system will not leave any country immune from what is happening.
These crises highlight the need for decisive action at the national and international policy level to avoid the worst consequences of the war on the global economy. This action should include global efforts to limit the damage on those affected by the war, mitigate the effects of higher oil and food prices, and accelerate debt relief. It should also include effective and robust supply-side responses at the national level while keeping global commodity markets operating effectively.
Moreover, governments should reprioritise their spending in favour of relief assistance directed to the most needy population groups.
* The writer is human rights offcer at the Supreme Standing Committee for Human Rights.
*A version of this article appears in print in the 29 September, 2022 edition of Al-Ahram Weekly.