Conflict between Russia and Ukraine puts the world at risk of recession; no improvement forecast until 2023

In six months of conflict between Russia and Ukraine, these two countries that represent only 2% of world trade GDP, according to the OCDR, managed to make the world economy go from recovery to recession. “Six months ago, the macroeconomic picture was very different from today,” ratings agency S&P Global said in a note. At the time, there were good growth prospects and inflation was considered “mostly transitory”. However, according to S&P Global “things have changed, and not for the better”. Major international organizations have systematically lowered their global growth forecasts for this year. The International Monetary Fund (IMF) now forecasts growth of 3.2%. In October 2021, the projection was 5%. Specialists consulted by Jovem Pan explain how the Ukraine and Russia managed to drastically change this scenario.

According to Daniel Miraglia, chief economist at Integral Group, “what the war brought was a shock in the supply of commodities, especially agricultural ones”, because “both Russia and Ukraine are producers of wheat and fertilizers”, and this generated a shock. supply, and in economics you have two alternatives when this happens. “The inflationary process that brings down supply” and causes prices to rise. Economist Lucas Dezordi explains that the world economy was already growing with some restrictions on food production and energy costs. He points out that the two countries in conflict “are not large economies from the point of view of per capita, but they are important in sectors that were already limited in supply”. This was because of the Covid-19 pandemic, which had already left traces to be reconstructed. Unicamp economics professor Marco Antônio Rocha goes further and says that although the countries are not among the most important and developed economies in the world, they have a 40% share of the world market. In this way, it is easier to understand how the world was economically impacted by the conflict that takes place in Eastern Europe. “The increase in food prices, especially grains, creates an inflationary process that reduces families’ disposable income” and creates social tension that affects other markets. The professor cites the example of a recession that is already happening in Germany. “The German economy is slowing down, and that pulls the eurozone into a more recessive picture.”

From Europe to the United States, from Latin America to Africa, the scenario is the same. In Tunisia, “the working classes are experiencing a catastrophe,” Naima Degaoui, a 70-year-old retired nurse, told the AFP news agency. “Prices go up almost everywhere, it’s peach, apricot, pepper, whose price has quadrupled, red meat,” she added. 11,000 km away, in Valparaíso, Chile, Nayib Piñeira, a 33-year-old social worker, said that “everything is more expensive”. A liter of gasoline costs 1,300 pesos, “practically what a European citizen pays with a European salary”. The rise in food prices, together with the cost of transport and products such as wheat, oils and fertilizers, was such that the UN warned of the risk of a “hunger hurricane” in Africa, although prices have dropped in recent years. weeks. In the face of rampant inflation, the massive aid policy associated with confinements during the pandemic has returned to the fore, despite historically high public debts. Heating subsidies, fuel discounts, price caps and taxes on oil companies’ profits… European countries compete in imagination, while the United States adopts its “Inflation Reduction Act”, a $370 billion investment plan . Public support has become even more essential as central banks tighten monetary policy to reduce inflation.

For Daniel Miraglia, the global recession is something that must happen and will be forced by central banks to control the inflationary process. “The Fed will come up with another 0.75 at the next meeting and will continue raising interest rates until the beginning of next year”, he points out. “The European Central Bank has also started high and will continue to raise interest rates until the first quarter of next year.” All this as a strategy to control the current situation, because “when interest rates rise, the world economy slows down”. However, he points out that at the moment the focus is not on economic recovery, but on controlling inflation. For economist Lucas Dezordi, one way to improve the world economic situation is to have “a decrease in conflicts and a better relationship between Russia and the West”. Professor Marco Antônio Rocha says that this whole scenario of uncertainty “harms investment and reduces the growth rate of the world economy”. For him, controlling this situation is complicated and we have already seen it from an international point of view. “It’s hard to think of a way to get control,” he says. He points out that what we are seeing lately are national solutions.

When it comes to how countries managed to handle the situation, experts disagree about Brazil. For Miraglia, the country is at a different moment, as it is “at the end of the monetary tightening”. As a result, “inflation is already subsiding and we are experiencing deflation”. For him, the country is “advanced in controlling inflation in relation to the rest of the world”. However, he warns that if the recession comes, we will be affected in the same way, as it is something that affects everyone. Dezordi and Marco Antônio say that the country did not know how to deal with this situation very well. “The data is simple, apart from Russia, which is at war, Brazil is the worst in terms of growth projection in all emerging markets”, says the Unicamp professor. “There was no strategy and nothing was done,” he adds. Economist Dezordi agrees and says the country has been hit hard, “especially in cases of food and energy prices”.