UN drops forecast for global economic growth in 2022 to 3.1%

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UN drops forecast for global economic growth in 2022 to 3.1%

8:57 CAT | 18 May 2022

The United Nations on Wednesday significantly lowered its forecast for global economic growth this year from 4% to 3.1%, saying the war in Ukraine has triggered increasing global food and commodity prices and exacerbated inflationary pressures, upending the fragile recovery from the COVID-19 pandemic.

The mid-2022 forecast from the U.N. Department of Economic and Social Affairs said the downgrade in growth prospects is broad-based, including the world’s largest economies — the United States, China and most significantly the European Union — and the majority of other developed and developing countries.

The World Economic Situation and Prospects as of mid-2022 report also warned that the current forecast of 3.1% “faces significant downside risks from further intensification of the war in Ukraine and potential new waves of the pandemic.”

“This slowdown and the war in Ukraine — triggering sharp increases in food and fertilizer prices — will hit the developing countries particularly hard, exacerbating food insecurity and increasing poverty,” the report said.

According to the U.N. forecast, global inflation is projected to increase to 6.7% in 2022, twice the average of 2.9% during 2010-2020, with sharp rises in food and energy prices.

U.N. Secretary-General Antonio Guterres said: “The war in Ukraine — in all its dimensions — is setting in motion a crisis that is also devastating global energy markets, disrupting financial systems and exacerbating extreme vulnerabilities for the developing world.”

He urged “quick and decisive action” to ensure a steady flow of food and energy supplies to open markets, saying this requires the lifting of export restrictions, releasing surpluses and reserves to countries in need, and addressing the increase in food prices “to calm market volatility.”

The 26-page report said the war in Ukraine is not only exacting heavy tolls on its economy and Russia’s but is also affecting the economies of neighbours in Central Asia and Europe.

Africa

Africa’s economic prospects, which were already sluggish amid recurrent waves of COVID-19 infections, subdued investment and limited fiscal space, have taken another hit from the fallout of the Ukraine crisis. Elevated commodity prices, particularly for oil and gas and metals, are expected to benefit energy and mineral exporters, but the region’s net energy importers will face a much higher fuel import bill, which will undermine their external and fiscal balances. Africa’s GDP growth forecast for 2022 has been adjusted downward to 3.7 per cent. The region will pick up some of the slack in 2023 with economic growth forecast at 3.8 per cent, an upward revision of 0.2 percentage points from our forecast in January. The continental outlook, however, belies subregional disparities, as North Africa — most severely affected by the crisis in Ukraine — is expected to grow by 3.9 per cent, instead of 4.8 per cent as earlier forecast.

The production disruptions in Ukraine and the Russian Federation have driven food prices to an all-time high, with average consumer price inflation forecasted to reach 12.3 per cent in 2022 — the second highest rate of inflation among all developing regions. Rapidly rising food and fertilizer prices and disruptions to supply chains will add to domestic price pressures, further worsening already dire food insecurity. Domestic food production is adversely affected by floods, droughts, and other extreme weather events. The UN World Food Program expects the number of people in West and Central Africa facing acute hunger to reach 41 million in June, many of which children. After two consecutive years of rising poverty, the number of people in Africa living in extreme poverty is projected to rise by another 3.7 million because of the conflict in Ukraine.

Source: World Economic Situation and Prospects as of mid-2022

The economy of the European Union — which in 2020 imported 57.5% of its energy consumption and is most directly hit by disruptions in energy supplies from Russia — is now expected to grow by only 2.7% this year, down from the January forecast of 3.9%, the report said.

The U.S. economy is expected to grow by 2.6% in 2022 and 1.8% in 2023, a significant downward revision from the January forecast, the report said, pointing to stubbornly high inflation, aggressive monetary tightening by the U.S. Federal Reserve and the direct spillover of the war in Ukraine.

In China, the U.N. said, the economy is projected to grow by 4.5% this year, down from 8.1% in 2021. It cited rolling lockdowns in major cities to contain the Omicron wave of the COVID-19 pandemic in the first quarter of the year.

“The resulting slowdown in economic activities contributed to prolonging supply chains disruptions, negatively affecting other developing countries through trade channels,” the report said. “In addition, soaring commodity prices contributed to higher manufacturing costs across the region, adversely affecting exports.”

As a group, the U.N. said the economies of developing countries are forecast to grow by 4.1% this year, down from 6.7% in 2021.