War in Ukraine Dims Prospects for Global Growth This Year

U.N. economists warn prospects for global growth this year are rapidly fading as the adverse impact of the war in Ukraine kicks in.

The U.N. Conference on Trade and Development, UNCTAD, has downgraded a previous more optimistic projection of the world economy to reflect the new reality.

UNCTAD’S updated trade and development report estimates global economic growth will decrease to 2.6% from 3.6% in 2022. It said the main factor behind the significant downgrade is the great uncertainty surrounding the war in Ukraine.

The report said the extent of military destruction, the duration of the war and sanctions against the Russian Federation will compound the ongoing economic slowdown globally and weaken the recovery from the COVID-19 pandemic. It said Russia will experience a deep recession this year.

Director of UNCTAD’s division on globalization and development strategies, Richard Kozul-Wright, said the war likely will increase geopolitical tensions, determine national monetary policies, add to inflationary pressures and hike fuel and commodity prices. He said all regions of the global economy will be adversely affected by the crisis, some more than others.

European Union faces downgrade

“The European Union will see a fairly significant downgrade in its growth performance this year, but so will parts of central and southern Asia as well," Kozul-Wright said. "… And countries that might not see a very significant downgrade in their growth performance, such as sub-Saharan Africa, are particularly vulnerable to some of the commodity price hikes that we see in those countries that are very large food importers, particularly wheat.”

Kozul-Wright said the very large level of external debt facing developing countries is of particular concern. The report projects developing countries will require $310 billion to service their external public debt this year.

“Partly as a consequence of the additional debt that was acquired during the COVID-19 shock … developing countries still cannot get the necessary fiscal support from the multilateral financial institutions that they need to be able to respond to unanticipated economic shocks,” Kozul-Wright said.

U.N. economists said measures to help developing countries cope with the crisis must be strengthened. They said there must be a more rigorous, serious, effective attempt to restructure their external debt so they can get back to a reasonable growth path.