On March 16, 2022, fuel prices are displayed at a gas station in Paris, France. GAO JING XINHUA GENEVA -- UN Conference on Trade and Development UNCTAD has cut its global economic growth projection for 2022 to 2.6 percent from 3.6 percent due to the Ukraine-Russia conflict and changes in macroeconomic policies made by countries in recent months.
Russia will experience a deep recession in 2022, and parts of Western Europe and Central, South and Southeast Asia will see a slowdown in growth, the UN agency said Thursday in an update to its Trade and Development report.
The ongoing conflict in Ukraine is likely to reinforce the monetary tightening trend in advanced countries after similar moves that began in late 2021 in several developing countries due to inflation pressures, with expenditure cuts also anticipated in upcoming budgets, it said.
A combination of weakening global demand, insufficient policy coordination at the international level and elevated debt levels from the pandemic will cause financial shockwaves that can cause developing countries to spiral into a downward spiral of insolvency, recession and arrested development.
The economic effects of the conflict will be compounded by the ongoing economic slowdown worldwide and weaken the recovery from the COVID-19 pandemic, said UNCTAD Secretary-General Rebeca Grynspan.
The geopolitical crisis has dealt a blow to confidence domestically. The report said that the increased pressure of price increases is making calls for policy response in advanced economies, including on the fiscal front, threatening a slower than expected slowdown in growth.
Soaring fuel and food prices will have an immediate effect on the most vulnerable in developing countries.
The report said that the danger for many of the developing countries that are heavily dependent on food and fuel imports is more severe as higher prices threaten livelihoods, discourage investment and raise the specter of widening trade deficits.
The conflict has resulted in an environment of volatile capital flows, exchange rate instability and rising borrowing costs, particularly for the least developed and middle-income developing countries, with the risk of serious external debt payment difficulties.
Rate hikes in advanced economies and disorderly movements in global financial markets could be a devastating combination for developing economies.