Economy: The Russian-Ukrainian war leads to a downward revision of ecological growth forecasts

Along with the staggering humanitarian crisis, Russia’s “military operation” in Ukraine has prompted a downgrade in global economic growth forecasts. Analysts and pundits have largely lowered their forecasts, mainly due to volatile commodity prices, supply chain disruptions and risks of a worsening Russian-Ukrainian war.

Rating agency Moody’s Investors Service said in its report that the crisis has not derailed global economic expansion, but rather shaken it. He now expects the G-20 economies to grow collectively by 3.6% in 2022, compared to the 4.3% growth predicted earlier in February. He further expects growth to slow to 3.0% in 2023.

Moody’s forecasts advanced G-20 economies to grow 3.2% in 2022 and emerging G-20 economies to grow 4.2% in 2022, down from its forecast of 3. 9% and 4.9%, respectively, before the invasion of Ukraine.

Investment bank Goldman Sachs has lowered its forecast for global growth following the invasion and soaring commodity prices. He now sees the global economy growing by 3.4% in 2022, compared to a forecast of 4.3% before the invasion. It also raised its end-of-year headline inflation forecast for 2022 to 7.0% year-on-year (from 5.5% before the invasion).

“Additional supply chain disruptions pose additional downside risk to growth and upside risk to inflation,” he said.

India and oil

India is vulnerable to high oil prices as it is a large importer of crude oil. As India is a surplus grain producer, agricultural exports should benefit from prevailing high prices in the short term.

However, high fuel and potentially higher fertilizer costs would weigh on public finances over time, potentially limiting planned capital expenditures.

It has now lowered its 2022 growth forecast for India by 0.4 percentage points. Moody’s expects India’s economy to grow 9.1% this year, followed by 5.4% in 2023.

Inflation concerns

Rising oil prices should have a direct or indirect impact on the cost of living for households, whether or not a country is a net importer. Directly, higher energy prices will impact the cost of living and indirectly through increased costs of transportation and the production of other goods and services. And as such, rising oil prices will create broad inflationary pressures across the board.

Apart from the impact of oil prices, the ongoing war has also disrupted already damaged supply chains. Just as the crisis was beginning to unwind, the Russian invasion of Ukraine and subsequent sanctions compounded supply chain issues.

“The magnitude and intensity of this supply shock could have more severe consequences than previous commodity price spikes, by widening inflationary pressures. Due to the cumulative effect of multiple shocks, inflation food and fertilizers, for example, could reach levels not seen in a decade,” Barclays wrote in a research report last week. “The impact will be hugely asymmetric, with most emerging countries disproportionately suffering food and fertilizer risks,” he said.

On the inflation front, he estimated that among emerging G-20 countries, inflation will rise 3.5% on average above his February expectations.

It can be noted that emerging G20 countries include Argentina, Brazil, China, India, Indonesia, Mexico, Russia, South Africa and Turkey.

The three main channels that could be affected by the ongoing geopolitical conflict are commodity and food price shocks, financial repercussions of sanctions, and security issues in an escalating or widening conflict scenario. military.

“Right now, the risk of an escalation of the conflict appears to be much higher than that of a thaw. The longer the conflict drags on, the more the economic impact will increase, and especially if it spreads beyond Ukraine,” he said.

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