By Stefan J. Bos, Chief International Correspondent Worthy News
WASHINGTON/BUDAPEST (Worthy News) – The International Monetary Fund (IMF) has warned that the war in Ukraine will undermine the global economy as it leads to record prices of food and energy and surging inflation.
In statements seen by Worthy News, the IMF said the costs of the Russian invasion of Ukraine could fundamentally reshape the global economic order in the longer term.
Already, “Food commodity prices rose 23.1 percent last year, the fastest pace in more than a decade, according to inflation-adjusted figures from the United Nations Food and Agriculture Organization. February’s reading was the highest since 1961 for the gauge tracking prices for meat, dairy, cereals, oils, and sugar,” the IMF explained.
“Now, the war in Ukraine and [related] sanctions on Russia are upending shipments and possibly production for two of the world’s largest agricultural producers. The two countries account for nearly 30 percent of world wheat exports and 18 percent of corn, most of which is shipped through Black Sea ports that are now closed. Wheat futures traded in Chicago, the global benchmark, recently rose to a record,” the IMF added.
The IMF expressed concerns about the worldwide impact of these developments, especially on poor households for whom food is a higher share of expenses. “Food costs account for 17 percent of consumer spending in advanced economies, but 40 percent in sub-Saharan Africa. Though this region is highly import-dependent for wheat, the grain constitutes only a minor share of the total caloric needs,” it said.
The IMF fears that the disruption may be even more significant for countries where bread is part of the daily menu and nations with close trade links to Russia and Ukraine, including Eastern Europe, the Caucasus, and Central Asia. “High wheat prices will weigh even more on economies in the Middle East and North Africa, such as Egypt, which is especially reliant on Russian exports.”
Reduced fertilizer supplies and higher oil prices will increase costs for harvesting, transporting, and processing food, further impacting the global economy, the IMF said. “Policymakers must prevent those pressures from fueling food insecurity by avoiding protectionism and increasing social assistance for the poorest.”
The world may also call upon the two largest economies, the United States and China, if the situation worsens, according to IMF expectations. “In the United States, where about 40 percent of corn production goes to ethanol, policymakers could reassess that use. And China, which holds more than half of global wheat and corn reserves, could consider releasing supplies to lower prices.”
Besides record prices for food and energy, the war fuels inflation and erodes the value of incomes, the IMF said in a post on its website.
It is also disrupting trade, supply chains, and remittances in countries neighboring Ukraine, the IMF added.
These developments are eroding business confidence and triggering uncertainty among investors that will depress asset prices, tighten financial conditions, and could trigger capital outflows from emerging markets, it said.
“The conflict is a major blow to the global economy that will hurt growth and raise prices,” the IMF stressed.
IMF officials already noted that they expect to lower the Fund’s previous forecast for 4.4 percent global economic growth in 2022.
The IMF predicted deep recessions in Ukraine and Russia and said Europe could see disruptions in natural gas imports and broader supply-chain disruptions.
Eastern Europe, which has absorbed most of the 3 million people fleeing Ukraine, would see higher financing costs.
In the longer term, the IMF said, “the war may fundamentally alter the global economic and geopolitical order.”
The IMF also warned that countries might “rethink reserve currency holdings,” amid several indications that the U.S. dollar is under pressure as the world’s currency of choice.
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