Ukraine War Shrinks Growth Prospects by 1 Percent

The UN Conference on Trade and Development (UNCTAD) forecasts a decrease in economic growth prospects for 2022, following the effects of the Russia-Ukraine conflict and the recent changes in economic policies by different countries.

“The economic effects of the Ukraine war will compound the ongoing economic slowdown globally and weaken the recovery from the COVID-19 pandemic. Many developing countries have struggled to gain economic traction coming out of the COVID-19 recession and are now facing strong headwinds from the war. Whether this leads to unrest or not, a profound social anxiety is already spreading,” said Rebeca Grynspan, Secretary-General, UNCTAD, via a press release.

In its updated Trade and Development report, UNCTAD indicates that Russia will suffer a deep recession, while Western and Central Europe and South and Southeast Asia will suffer slowdowns. The war in Ukraine is likely to reinforce monetary policies in certain countries, as countries seek to contain inflationary pressures while cutting costs.

“The added pressure of price increases is intensifying calls for a policy response in advanced economies, including on the fiscal front, threatening a sharper than expected slowdown in growth. The danger for many of the developing countries that are heavily reliant on food and fuel imports is more profound as higher prices threaten livelihoods, discourage investment and raise the specter of widening trade deficits,” reads UNCTAD’s report.

UNCTAD published a series of recommendations for the global economy. These include creating more concessional and less conditional multilateral financial support for developing countries, allowing them to withstand financial and economic shocks. Other recommendations are the provision of immediate debt relief for Ukraine and an increase in use of Special Drawing Rights to supplement official reserves and provide liquidity to avoid severe deflationary adjustments. Finally, UNCTAD urged for more effective and less ad hoc swap arrangements between central banks and sector-specific policies to include price controls and subsidies to tackle supply-side and mark-up pressures on inflation.

BBVA had analyzed how the Russia-Ukraine war would impact the Mexican economy, highlighting that the country will be affected due to Mexico’s open economy and manufacturing vocation as transportation prices increase. However, Mexico’s total exports and imports with Russia represent less than 0.1 percent and 0.5 percent respectively. Higher inflation will also affect the country, with global energy prices forecasted to increase, increasing gas and gasoline prices, as reported by MBN.