Developing countries are suffering from the economic consequences of the war in Ukraine with the risk of provoking social discontent.
The war in Ukraine, which is synonymous with rising commodity prices, is creating a new wave of shocks in developing countries already weakened by the pandemic, raising fears at the UN of considerable social discontent.
In a new report, the UN Conference on Trade and Development (Unctad), an economic think tank from the UN, warns about the massive economic damage the conflict is already causing in many parts of developing countries.
“Many developing countries have struggled to ensure a dynamic economic recovery from the Covid-19 recession and are now facing strong headwinds from war. Whether this leads to unrest or not, deep social anxiety is already spreading,” said UNCTAD Secretary-General Rebeca Grynspan. According to the UN, cereal prices have already exceeded prices since the beginning of the Arab Spring and food riots in 2007/2008.
“A hurricane of famine”
Due to the blockade of agricultural production in Ukraine and Russia, the war in its aftermath will hit the poorest countries hardest, UN Secretary-General Antonio Guterres warned ten days ago against “a hurricane of famine and famine”. a collapse of the world food system ”.
Unctad fears that the combination of weakened global demand, inadequate international political coordination 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”.
Overall, “the economic effects of the war in Ukraine will exacerbate the current economic downturn around the world and weaken the recovery from the Covid-19 pandemic,” according to Rebeca Grynspan. In its report, Cnuced lowered its forecast for global growth to 2.6% for 2022, from an initial forecast set at 3.6% in September.
A “gun pointed” 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 integrate the war in Ukraine, but also “the tightening of macroeconomic policies, in the developed economies “.
By mid-March, UNCTAD had already warned of a rapid deterioration in the outlook for the world economy with the war in Ukraine, under the influence of rising food, fuel and fertilizer prices, increased financial volatility, the complex reconfiguration of global supply chains and rising trading costs.
According to Cnuced, Russia, which is heavily sanctioned for having invaded Ukraine, should experience a deep recession this year (-7.3%). Significant slowdowns in growth are also expected in parts of Western Europe and Central, South and South-East Asia.
Monetary tightening trend
The report finds that the war puts further upward pressure on international energy and commodity prices, strains household budgets and increases production costs, while trade disruptions and the effects of sanctions can dampen long-term investment.
According to UNCTAD, the conflict is likely to intensify the trend towards monetary tightening in advanced countries, following similar measures that began in late 2021, in several developing countries due to inflationary pressures, with also spending cuts planned in future budgets.
These measures are being taken “even though inflation has not yet led to sustained wage growth, making the threat of a wage-price spiral unfounded,” she laments. “The global economy is, literally and figuratively, with a gun aimed at it. Stopping the war in Ukraine, rebuilding its economy and establishing a lasting peace agreement must be the priorities,” the report said.