“While the current situation remains highly volatile, the economic consequences will be very serious.” Thus, the International Monetary Fund predicted the effects of the Ukraine war on the global economy at the beginning of the military operation, before confirming the validity of its hypotheses figures after 8 months.
The Ukrainian-Russian war prompted the world to reconsider the global economic system, as the war shook the foundations of the economy in most countries of the world, amid escalating crises in food and energy security.
On the cost of the impact of the Ukraine war on the global economy, the Organization for Economic Cooperation and Development, an intergovernmental organization comprising 38 countries and considered a grouping of advanced economies based in Paris, said:
- The cost of the impact of the war in Ukraine on the global economy is estimated at $2.8 trillion by the end of next year.
- The number could be even higher if the harsh winter leads to energy rationing in Europe, which means a further reduction in production.
- Russia’s military operation in Ukraine has sent energy prices soaring, denting household spending and undermining business confidence, exacerbating supply chain disruptions, causing shortages of food and other necessities, and shaking markets around the world.
- Western governments fear that Russian President Vladimir Putin’s decision to partially mobilize and Moscow’s preparations to annex swathes of Ukraine through referendums could prolong the conflict for months and possibly years, adding to the uncertainty that weighs on the global economy.
- Prices may increase, if Europe experiences a shortage of energy during the coming winter, with expectations of cooler weather.
- Energy consumption will need to be reduced by 10 to 15 percent compared to recent years.
- The sharp rise in prices threatens an increasing number of companies, some of which have been forced to reduce their activities.
- Global GDP will grow by 2.2%, compared to 2.8% previously forecast in June, although it kept its growth forecast for this year at 3%, after cutting it clearly in recent months.
Who will pay the price?
- According to the organization, the countries neighboring Ukraine and Russia will pay the highest price.
- Growth in the Eurozone will be subject to the largest decline of all regions of the world, with an expected 0.3% vs. 1.6% previously forecast in June.
- The main reason for this is the rise in energy prices and inflation, which is expected to reach 8.1% this year and 6.2% next year.
- The organization expects that a recession, which the world’s leading economists have been waving for months as a major risk, will be the next scenario in Germany.
- The largest European economic power, according to the organization, will see its gross domestic product decline by 0.7% next year, a decrease of 2.4 percentage points compared to previous expectations.
- Its major neighbors are escaping recession and growth is expected at 0.4% in Italy, 1.5% in Spain and 0.6% in France where the government is still forecasting 1% growth.
How does raising interest rates affect?
- She stressed that raising interest rates is a “key factor” in the current slowdown, but she calls on central banks to continue to do so in order to avoid increasing rates further if inflation continues to rise.
- Governments across Europe have spent billions of euros helping families and businesses cope with the sudden rise in energy costs, and some of this assistance has come in the form of energy price caps. But these caps weaken the incentive for households to cut consumption.
- Targeted and temporary fiscal measures for families and businesses are part of the solution in the face of the emergency, arguing that the measures taken so far to curb rising energy prices were “badly targeted”, because they often benefited an excess number of families and businesses, and demanded that aid should be targeted. most vulnerable families.
A difficult year for the global economy
The Italian economic analyst, George Adamund, told “Sky News Arabia” that “we must put what is happening in the context of the Corona pandemic, as it led to negative changes in supply chains and was exacerbated by the Ukraine war. The effects of inflation in the world, which increased with the war, and its repercussions were on the prices of grain and energy.”
Adamund added that “the global economy has suffered from logistical bottlenecks, a shortage of intermediate products and a slowdown in imports of energy goods, which created inflationary pressures. After inflation fell to 1.2% in May 2020, it returned to rise to 6.5% in February 2022 due to the rise in energy and food prices globally.”
He explained that “among the indirect effects is that countries tended to secure internal demand, especially in the field of food, by banning the export of some commodities,” noting that the effects of the crisis were severe on the countries of Eastern Europe, the Middle East and North Africa.
He pointed out that “central banks around the world have tried to deal with these effects by raising interest rates, and curbing waves of high inflation, while it will have other effects on investment and may lead to a state of recession, but decision makers have to be careful in helping consumers and companies in what In terms of energy prices, that will be costly and lead to budget deficits around the world.”
He considered that “the fourth quarter of this year, as well as next year, will be difficult in light of the intention of the US Federal Reserve to continue raising interest rates and the effects of inflation.”
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