By Girmay Yihdego
The global economy is supposed to fully recover from the pandemic and attain over 5% growth in 2022. Newer projections now suggest that the global economy may only grow by 4.1%. Despite the initial anticipation of economic deflation, inflation has hit a 40-year high, especially in the US, where it reaches close to 9% in March. The major reason attributed to slow economic growth has to do with the war in Europe, though the appearance of the new COVID strain has also substantially exacerbated the situation in Europe, Korea, Japan, and China. Globally, growth is expected to further decline by 0.5 -1% in the 2nd quarter. Though the pandemic mortality rate is under control, the US economy will continue to suffer from COVID-related economic performance hurdles, including impacts on the supply chain and the price of gas and other goods that might worsen the inflation as well.
I. SUBJECTS NEEDING IMMEDIATE ATTENTION
- The crisis of the global food balance sheet. Together, they provide 19% of the world’s barley supply, 14% of wheat, and 4% of maize, making up more than one-third of global cereal exports. They are also the lead suppliers of rapeseed and account for 52% of the world’s sunflower oil export market. Some countries such as Egypt, Lebanon, Bangladesh, and Sudan will have close to 50% of shortages in their food supply.
- Supply shortages are driven by price spike hits, on food products, petroleum, and other associated products, such as fertilizer in an unprecedented manner, especially in landlocked countries.
- With energy prices rising parallel to food prices, the purchasing power of the world’s vulnerable consumers has decreased sharply.
- Fertilizer supplies for the 2022 -23 cropping season are predicted to be at an all-time low (15% of the global supply originates from Russia). Just a month after the war broke out, wholesale and retail prices already rose 30% and 100% for wholesale and retail, respectively. If the situation continues to be uncontrolled, prices may go as high as 200 -250 % in the coming two quarters. These disruptions to the supply chain are already impacting smallholder farmers due to high fertilizer prices.
- Sustaining over 3.8 million Ukraine refugees will significantly take up financial aid to developing countries.
- Climate hazards will be exacerbated in the coming years, partly due to little attention paid to the cause by donor countries, coupled with aggravated chemical release into the atmosphere.
- Urban poor and public servants in developing countries will disproportionately suffer. The cost of food may go over 80% of their income.
- Severe social crises with potential political unrest cannot be ruled out, particularly in developing countries with slow economic recoveries from the pandemic.
- Food security and the balance of payment crises will be imminent in several developing countries.
- A recession could be a case in emerging and developed economies, especially those that have not fully recovered from the pandemic and its associated economic slowdown.
II. SHORT-TERM RECOMMENDATIONS
- Developing countries have to re-profile their debt as early as possible and start negotiations with the IMF and other debtors.
- About 60 % of developing countries will be distressed, thus the IMF should increase special drawing for these countries.
- Urban setups including unemployed households and low-income families need safety nets and public transfers.
- Slow down high-profile infrastructure projects and redirect efforts to increase food production and alternative food supply systems.
- Avoid/refrain as much as possible from actions that further destabilize humanity.
- Turn climate change into an economic case, drawing COVID’s experience of a high return rate of investment with a strong multiplier effect on the economy.
III. MIDTERM-TERM RECOMMENDATIONS
The war in Europe has far-reaching impacts on the world order. This war is not like any other war. It involves global superpowers in a significant way. It is not and has never been about just Ukraine and Russia. It is between the superpowers who want to assert their global hegemony. It has the potential to change the current world order, therefore, it will be enormous. It may be the beginning of the end for the existing order.
The following are some courses of action for risks changes:
- Fragmentation of payments
Economic sanctions by the US and its allies against countries seem no longer effective policy of subjugation. It not only proves to be ineffective but also counterproductive.
Russia’s decision to sell gas only in Rubble has already disrupted the almighty power of the US dollar as an exclusive medium of exchange. Rubbles have already begun appreciating against the value of the dollar. The negotiation between Saud Arabia and China for using the Chinese Renminbi for petrol purchase, the collaboration between Iran and Russia to use Iran’s designed swift system to go around the banned swift services, the ongoing negotiation between India and Russia to do business around dollar are some of the indicators among the others. The IMF recently expressed its concern about how the currently coordinated sanction against Russia could fragment the world currency as the use of digital currency will also be widely adopted.
- The world energy market: This market will not be the same after this conflict.
- Regulatory role of central banks: the power of economic stabilization of both national and multilateral systems could be highly compromised.
- Threat to multilateralism systems, including the UN: this system’s neutrality and credibility will be under question in unprecedented ways.
IV. LONG-TERM RECOMMENDATIONS
Whereas the above listed are of immediate concern, there is a handful of detrimental issues that warrant concern in the long-term:
- Mapping out the new realignments and their prospects
- Keep informed on the moves, interests, and strategies of each party involved
- Carry out a comprehensive analysis of the pros and cons of being in association, neutrality, or engaging in the process
- Figure out the comparative advantage of our country
- Stay alert and educate ourselves on contemporary global dynamics in general and the digital world, including the role and impact of digital currencies, cyber security, and synth biology of the alternative use of natural resources and other disruptive technologies in particular