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Russia’s invasion of Ukraine endangers global economy

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Many voices are warning of the recession that the war against Ukraine could cause. “War slows economic recovery» the International Monetary Fund (IMF) said recently. “Is the global economy in the middle of a storm, with Europe, China and the United States all entering a recession at the same time later this year? “, American economist Kenneth Rogoff request. Such negative dynamics could trigger a new global financial crisis.

The war against Ukraine has major consequences within the EU itself

The negative consequences of the war are obviously major within the EU itself, since we are neighbors of the theater of operations and maintain close economic ties with Ukraine and Russia. It is also leading to an unprecedented flow of refugees into the EU since the Second World War. The European Commission has already addressed these issues and will continue to do so, particularly on the energy front with the REPowerEU plan, which will be clarified this week. But our own difficulties should not make us forget those faced by many emerging and developing countries. I have already discussed the crucial subject of food insecurity on this blog recently. The shock waves are affecting more and more countries and sectors. Let’s summarize the risks facing the global economy.

“The rise in inflation has been more pronounced in emerging and developing countries. Inflation affects the poorest and weakest the hardest and contributes to increasing inequality around the world.

The war against Ukraine was accompanied by a sharp rise in inflation under pressure from the prices of food, energy and main raw materials. Inflation had already been rising throughout 2021 due to increased demand driven by economic recovery and continued disruption of many value chains, but the war has accelerated it. And this movement has been more pronounced in emerging and developing countries. Inflation mainly affects the poorest and weakest and contributes to increasing inequalities in the world.

This rise in inflation leads to significant increases in interest rates from central banks and a tightening of monetary conditions. And here again, this movement is even more marked in emerging and developing countries. This in a context where the external debt of these countries had increased further in recent years due to the pandemic. Emerging and developing countries have less budgetary room for maneuver than developed countries to combat crises and cushion the impact on their citizens. This was already the case before, but it is even more the case today.

“Emerging and developing countries have less budgetary room for maneuver than developed countries to combat crises and cushion the impact on their citizens. This was already the case before, but it is even more the case today. »

In this worrying context, in recent weeks we have also observed a rapid fall in share prices on the financial markets and a spectacular loss of value in cryptocurrencies. This could trigger a new financial crisis, accompanied by a “flight towards quality” international capital to the United States. This risk is already starting to materialize with a sharp increase in the exchange rate of the American currency; a movement that fuels inflation in countries whose currencies are depreciating. This context led the IMF to significantly lower its economic forecasts compared to last January, particularly for emerging countries, aggravating the loss of growth suffered by these countries due to the pandemic.

If we look more specifically at the different regions of the world, in the Middle East, countries that do not produce energy and import food products like Egypt are weakened. The IMF also anticipates a strong slowdown in North Africa and in countries that were already experiencing major crises such as Lebanon and even more so in Yemen, Syria and Afghanistan. In Turkey, which was already going through difficult economic times, inflation has soared above 60%, while the economies of the Western Balkans are expected to falter considerably due to the war.

The Caucasus and Central Asia will be the hardest hit regions due to their close ties to Russia and Ukraine, with non-energy producing countries including Armenia and Georgia most at risk. In Latin America, the COVID-19 pandemic has wreaked havoc in many countries and led to a sharp increase in poverty and inequality. The continent is also expected to experience a sharp economic slowdown this year, particularly in Brazil and Chile.

More limited effects in Asia

In Asia, the direct effects of the war are expected to be more limited, particularly because the price of rice remains stable, but the COVID-19 pandemic has significantly weakened the region’s economy and the economic slowdown in Europe and the United States. United will continue to affect it. While China is expected to experience a significant economic slowdown, due to the resurgence of the pandemic and the strict zero COVID policy. Some countries, such as Sri Lanka and Pakistan, are nevertheless already destabilized, while in Indonesia, the rise in palm oil prices, a consequence of the global shortage of vegetable oil caused by the war (Ukraine exports half of the world’s sunflower oil) has led the country to block its exports. Looking ahead, the exceptional heat waves experienced by the Indian subcontinent this spring, combined with droughts in Europe and the United States, could have a very negative effect on global food security in the months to come. India, the world’s third largest wheat producer, has already decided to ban wheat exports…

The risks are greatest in sub-Saharan Africa. This continent, which is experiencing strong population growth, is already the most affected by climate change, with prolonged droughts in East Africa. It is also increasingly destabilized, particularly in the Sahel and the Horn of Africa. Nigeria and South Africa are going through major social crises. The external debt of many African countries has increased significantly in recent years, notably that of China, and spreads have widened considerably since the outbreak of the war in Ukraine. Several sub-Saharan African countries massively import energy and food products, notably wheat from Russia and Ukraine.

“Most EU partners do not question our position on the war, but demand more action from us to address its consequences. »

In short, this gloomy economic outlook in many emerging and developing countries will have negative social and political consequences and affect the perception of the war against Ukraine. Most partners do not question our position on the war, but demand more action from us to address these consequences. As the crisis progresses, the risk is clear: encouraged by the Russian propaganda apparatus, many may be tempted to blame Europeans and the West for these problems rather than the war of aggression. led by Vladimir Putin. This is factually false, but if people define a situation as real, its consequences are real.

During the G7 ministerial meeting, we had a video conference with Retno Marsudi, our Indonesian colleague, ahead of the G20 meeting scheduled for November in Bali. She warned us against this trend, as did Argentine President Alberto Fernández during his meeting with the Spanish government in Madrid last week. This is why we must counter the Russian discourse everywhere and explain the reality of the facts and responsibilities, not only to political leaders but also directly to public opinion.

We must do more

But we also need to do more. First, by increasing pressure to get Vladimir Putin to stop this war and withdraw Russian troops from Ukrainian territory and allow Ukraine to continue producing and exporting agricultural products. Second, we must lead with ambition in international institutions, the United Nations, the World Bank, the International Monetary Fund, the Food and Agriculture Organization and the World Food Program, the G7 and the G20 . It will be necessary to increase the efforts already undertaken to reduce the debt of poor, over-indebted countries, in particular by getting China to assume all its responsibilities in this area. And, once again, we need a closely coordinated macroeconomic policy response from the world’s largest economies to limit the risks of recession and global financial crisis.

We must also avoid false solutions, by keeping trade open, as trade barriers would only worsen affordability and have an asymmetric impact on the poor. We should help boost local production in emerging and developing countries rather than throwing away in-kind food donations that have detrimental effects on development. At the G7 Foreign Ministers’ Meeting, we discussed the issue at length and welcomed the UN Secretary-General’s initiative to convene a “Global Crisis Response Group on Food, Energy and finances” (GCRG). The global response so far is inconsistent and the challenge is not only to do more, but also to better coordinate efforts.

The EU and its Member States are already the largest contributors to development aid

The EU and its member states are already the world’s largest contributors of development aid. However, we must recognize that we face strong constraints. Due to its limited amount and its multiannual nature, the EU budget does not leave us much room for maneuver to deal with exceptional situations such as the one we are currently facing on a global scale. This is one of the subjects on which the work undertaken on the future of Europe should make it possible to move forward.

We must at least ensure that our internal difficulties and our support for Ukraine do not weigh on the assistance we provide to other regions of the world. There are growing fears that this will happen. We must also coordinate more closely the actions of European institutions, including financial institutions, and Member States in different countries and regions of the world.

The war against Ukraine has pushed us to speak the “language of power”, to provide active support to Ukraine, to be determined to apply sanctions and to improve our common defense capabilities. However, to force Vladimir Putin to back down, we must also convince the world that the economic problems we face are the result of Putin’s chosen war and take resolute action to address the broader impacts this brutal war is having on our partners. global.

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