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The cost of the Russia-Ukraine war for the world is increasing day by day. U.N. Secretary-General Antonio Guterres recently warned that around 1.7 billion people are facing serious problems in food security, energy and financing, which have exacerbated poverty and hunger. Guterres emphasized that the war, both its main effects and aftershocks, has targeted mostly the vulnerable people, countries and economies. According to him, the impact of the war is “global and systematic.”
According to the U.N., following first the spread of the coronavirus and then the Russia-Ukraine war, there is a “perfect storm” in the global economy and trade. The reports prepared by the U.N.’s Global Crisis Response Group on Food, Energy and Finance (GCRG) have revealed that 69 countries with a population of 1.2 billion are experiencing this storm. There’s a three-dimensional crisis, the group said, reporting that the number of countries facing it is 25 in Africa, 25 in Asia-Pacific and 19 in Latin America and the Caribbean. Guterres pointed out that global inflation has risen, purchasing power has declined, growth expectations have fallen, development has halted and there is a risk of a vicious cycle of inflation and a severe recession in growth. In other words, he pointed to the risk of stagflation.
The stagflation risk
A year ago, famous U.S. economist Nouriel Roubini first began to mention this trend; however, today, we internationally observe that more and more economists do not ignore the risk of stagflation. Strangely, several well-known neoliberal orthodox economists, eerily ignoring the grave uncertainty and devastation wrought by the pandemic and the Russian-Ukrainian war, state that central banks urgently need to raise interest rates to curb the risk of rising inflation. However, such a step will not be able to break the impact of the rising global inflation bubble on national economies in the short term until the end of 2022 and will require the risk of stagflation to be taken into account.
The example of wheat
The world is already struggling to cope with the pandemic, climate change, sustainability, mobility and the lack of adequate access. In addition, the lack of access to food, energy and financing in leading developing and poor countries that make up a significant part of the world’s population requires more cooperation in the world to cope with our common crises. However, it seems equally difficult to bring countries together for common solutions to all of the topics that require a serious struggle for the global economic system. Thirty-six countries, including the world’s poorest, rely (or more so relied) on Russia and Ukraine for more than half of their wheat imports. With the war following the pandemic, wheat and corn prices alone have increased by 30% since the beginning of 2022.
In terms of global and regional agricultural production and food security, Russia and it’s neighbor Belarus also supply about 20% of the global fertilizer demand. In addition to the more than 60% increase in oil prices in a year, the 50% increase in natural gas prices in recent months has doubled the prices of fertilizers, considering the raw material and energy input required for fertilizer production. On energy, the U.N. advises governments to avoid hoarding oil and gas and has also called for the immediate release of strategic oil stocks and additional reserves and to reduce the use of wheat for biofuels.
Guterres, on the other hand, urges countries to use the crisis as an opportunity to accelerate the transition to renewable energy. He recalled also that the International Monetary Fund (IMF) and the World Bank’s spring meetings on April 18 and April 24 are an opportunity. He called on the two organizations to increase their limits for rapid financial assistance, suspend interest rate surcharges for two years and explore the possibility of providing more liquidity through special measures targeting the vulnerable and most affected countries. I hope for some light at the end of the tunnel next week.