Global Economy To Grow Down Than Expected

FDI Flows to South Asia Grew Despite Covid 19

The global economy is expected to grow 3.1 per cent in 2022, down from the 4.0 per cent forecast in January, largely due to Ukraine war that triggered a devastating humanitarian crisis in Europe, increasing food and commodity prices and exacerbating inflationary pressures worldwide. The expectation comes in the UN’s latest World Economic Situation and Prospects (WESP) report.

In the report, the UN stated that global inflation is also set to reach 6.7 per cent this year, or twice the average of 29 per cent during the period from 2010 to 2020, with sharp rises in food and energy prices

QUICK ACTION CRUCIAL: GUTERRES

“The war in Ukraine in all dimensions is getting in motion a crisis that is also devastating global energy markets, disrupting financial systems and exacerbating extreme vulnerabilities for the developing world,” said UN Secretary General António Guterres.

“We need quick and decisive nction to ensure a steady flow of food and energy in open markets, by lifting export restrictions, allocating surpluses and reserves to those who need them, and addressing food price increase to calm market volatility,” he added.

On the Global Economic Outlook, the report noted that rising geo-political and economic uncertainties are dampening business confidence, and increasing borrowing costs are weakening investment prospects. The global economy faces major downside risks from further escalation of the war in Ukraine, new waves of the pandemic, and faster-than expected monetary tightening in the developed economies, it added

REGIONAL PROSPECTS

  • The deterioration of growth prospects is broad-based, including for the world’s largest economies — the United States, the European Union, and China — and the majority of developing economies.
  • Amid high inflationary pressures and aggressive monetary tightening, the United States economy is forecast to grow by only 2.6 per cent in 2022, down from the 5.7 per cent GDP growth it registered in 2021.
  • Stringent zero-COVID policies cloud the growth prospects of the Chinese economy, which is set to expand by 4,5 per cent in 2022, which is 0.7 percentage point lower than the previous forecast.
  • The war in Ukraine, and the economic sanctions imposed against Russia are exacting heavy tolls not only on the economies of the Russian Federation and Ukraine, and the neighbouring economies, including the European Union
  • The economy of the European Union is projected to grow by 2.7 per cent in 2022, marking a sharp downward revision of 12 per cent since the forecast in January
  • In developing countries, output is projected to increase by 4.1 percent in 2002, against the back drop of higher energy and food prices, rising inflationary pressures and slower growth in the United States, China and the European Union,

RISING INFLATIONARY PRESSURES

  • Global inflation is projected to increase to 6.7 per cent in 2022, twice the average of 2.9 per cent during the past decade.
  • Headline inflation in the United States has reached the highest level in four decades.
  • Inflation is rising in many countries across Western Asia and Latin America and the Caribbean, and in the CIS region.
  • The decline in real incomes is particularly pronounced in developing countries, where poverty is more prevalent, wage growth remains constrained, and fiscal support measures to alleviate the impact of higher oil and food prices are more limited.
  • Surging food inflation is worsening food insecurity and pushing millions below the poverty line in many developing countries that are still struggling with economic shocks from the pandemic.
  • Rising poverty will inevitably worsen inequality, both with in and between countries, in the near term.
GLOBAL CLIMATE
  • As countries are looking to expand energy supplies amid high oil and gas prices, fossil fuel production is likely to increase in the short term. High prices of nickel and other metals may adversely affect the production of electric vehicles, while rising food prices may hamper the use of biofuels,
  • The crisis due to the Ukraine war also presents an opportunity for countries to address their energy and food security concerns by accelerating the adoption of renewables and increasing efficiencies, thus strengthening the fight against climate change
MOUNTING MACROECONOMIC POLICY CHALLENGES
  • Major central banks in developed economies will need to calibrate their interest rate hikes to contain inflationary pressures, while minimizing their spillóver effects on the borrowing costs and debt sustainability of the developing countries.
  • Higher inflation and rising borrowing costs will further constrain the fiscal space of developing countries.
  • Rising debt servicing obligations will likely push many countries in the direction of austerity and fiscal consolidation, but a premature fiscal consolidation will derail the still fragile recovery and increase their debt sustainability risks.
  • Governments need to provide targeted support to alleviate the effects of higher food and fuel prices on poorer segments of the population, while pursuing medium term fiscal and debt sustainability. This will require comprehensive debt restructuring and debt relief for the poorer countries, particularly the last developed countries.

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