Source: Wall Street News
The “fire” of the Russian-Ukrainian conflict has already set off a “stagflation” tsunami around the world.
Inflation fueled by soaring energy and food prices has put advanced economies at risk, but for many emerging markets, inflation is just one of the most visible pieces of bad news that can be overwhelming.
For most countries, the immediate economic consequences of the war could be higher inflation (which erodes purchasing power), slower growth, Mohamed El-Erian, a prominent economist and chief economic adviser at Allianz, wrote in a recent article. , rising inequality and financial instability. And for developing countries that rely on commodity imports, the challenges are even more severe, especially when compared to the problems faced by advanced economies.
Britons, for example, are simply worried about higher living costs, while some Africans are mired in fear of national famine. The higher trade and budget deficits in the U.S. appear to be far less problematic than those of heavily indebted low-income countries, which are directly at risk of default.
Another example is the recent sharp depreciation of the yen, but a collapse in the exchange rate of poorer countries could trigger broader financial instability.
El-Erian also referred to the warning of Nobel Laureate in Economics Michael Spence: For too many developing countries, the probability of simultaneous growth, energy, food and debt crises is so high people worry. If this nightmarish scenario materialises, the impact will extend far beyond individual developing countries and will not be limited to economic and financial realms.
In El-Erian’s view, it is understandable that the major impact of the Russian-Ukrainian conflict on the global economy has received widespread attention, but a new pattern of “fire everywhere” worldwide may have the same impact on long-term economic well-being. Over time, these “small fires” may also coalesce into disasters with the same threat as the original “big fires.”
Today, we are seeing a series of chaos happening everywhere.
Turkey’s inflation rate has reached an astonishing 70%, a new high in two decades; Sri Lanka has been plunged into the worst economic crisis in more than 70 years, with severe shortages of food and fuel, and political and social turmoil has ensued; many countries’ exchange rates have rapidly depreciated, and India has experienced a coal shortage. The severe power crisis caused by…
What is more serious is the food shortage. The conflict between Russia and Ukraine has not only blocked the global food supply, but also the prices of fertilizers and fuel have skyrocketed around the world. The food shortage is very likely to lead to the resurgence of food trade protectionism.
The recent media exposure of Peru’s plight has revealed the tip of the iceberg of the looming risk of a global food crisis. Peru’s agricultural industry is facing a shortage of 180,000 tons of urea, and unless a solution is found in the next few months, the country’s production of staples such as rice, potatoes and corn will fall, said Eduardo Zegarra, an agricultural economist and researcher at the think tank GRADE. down as much as 40%. In addition, food producers have warned that fertilizer shortages could cause famine in Peru.
Just yesterday, “the world’s second largest wheat exporter” India suddenly banned wheat exports, and the ban took effect immediately, which added another fire to the already severe food supply. The U.S. Department of Agriculture warned that global wheat production could fall for the first time in four years. Wheat prices have risen 44% this year, while rice prices have risen 16%.
The United Nations World Food Program has said that the Ukrainian conflict has exposed the interconnected nature and fragility of the agricultural system, with serious consequences for food security. The total number of people facing severe food insecurity in 2021 will reach a record 193 million.
Next, will the world play out such a playbook: energy crisis -> food protectionism -> economic blockade -> widespread famine?
El-Erian argues that policymakers must ensure that “fires” sparked elsewhere by the conflict in Ukraine do not end up sparking a second devastating fire that destroys the lives or livelihoods of the world’s most vulnerable people.
To this end, El-Erian makes three suggestions:
1. Develop multilateral debt restructuring and relief measures to provide respite to over-indebted countries or creditors.
2. In order to reduce the risk of food shortages and famine, emergency food security buffers and corresponding financing tools must be rebuilt. This measure can also prevent some countries from issuing food export bans or excessively hoarding food.
3. Rich country governments need to provide more official aid, including long-term low-interest loans or direct donations.
“If there is no rapid progress in these areas, the phenomenon of fire everywhere will further weaken economic growth, increase the risk of recession, exacerbate financial market volatility, and thus damage global economic well-being,” El-Erian wrote.
Editor/Corrine
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