When the Prime Minister of India, in a statemanly gesture emphasized to the Russian President Vladimir Putin, that “This cannot be an era of War” on the sidelines of the SCO Summit at Samarkand, he acted as a conscience keeper for the global powers. He said this because he is a visionary who could see the perils of protracted Russo-Ukraine War for world peace and growth. It is now proving true.
The recent forecast of the Organization for Economic Co-operation and Development (OECD) on growth prospects of the world economy is a grim reminder of what it means if the Ukraine war continues further. In a bleak report titled “paying the price of war”, OECD, a Paris based organization, downgraded its earlier forecast for global economic growth. According to its projections even though the world economy would record a growth rate of 3% in 2022, it would slide down to 2.8% in 2023 as the Ukraine war has aggravated inflationary pressures, pushed up the cost of living, especially energy and food prices and the footprints of Covid-19 times supply chain disruptions still continue to take their toll.
The claims and cross claims of the warring parties in Ukraine conflict and their allies have not only blurred the loss of life but also drifted the global attention from the brewing economic crisis and a looming global recession. The war would not bite only Ukraine and Russia, but could also give a great shock to the global economy that is now slowly revealing.
The Russia-Ukraine war is now in its eighth month. The estimate of loss of human lives to Russia in the Ukraine war is difficult to ascertain. A United Nations Human Rights Monitoring Mission (UNHRMM) corroborated in September around 14,000 civilian causalities with 5,767 people killed and 8,292 injured from Ukrainian side. UNHCR estimates show that the war forced about 15 million people in Ukraine to flee their homes by August. The invasion has devastated Ukraine’s economy and according to the World Bank, it would shrink by 45% in 2022. The loss of infrastructure in Ukraine is in several billions. The World Bank and the EU have estimated that Ukraine requires USD 349 billion for reconstruction and recovery.
The US intelligence estimates that since 2014, some 15,000 Russian soldiers have been killed so far in Ukraine and three times that number wounded. Even if the numbers could be exaggerated for the war of perception, there is no doubt that the death toll is high. Russia’s Economy Minister Maxim Reshentnikov revealed in September that the Russian government has forecasted a 2.9% contraction in GDP in 2022. He further added that across the full year of 2023 the economy would post a contraction, albeit a marginal one, i.e., 0.9% due to the “high base effect” of Russia’s strong growth of 3.5% in the first quarter of this year.
But as the war lingers and there is no sign of relenting from both the sides, the OECD report has remarked, “A number of indicators have taken a turn for the worse, and the global growth outlook has darkened.” Global output next year is now projected by OECD to be USD 2.8 trillion lower than what the OECD forecast before Russia attacked Ukraine – a loss of income worldwide equivalent in size to the French economy.
The lingering of Ukraine war is proving costlier for the European Union as well. The OECD projected that Euro zone economic growth would slow from 3.4% this year to only 0.3% in 2023 which implies the 19-nation shared currency bloc would spend at least part of the year in recession. The OECD was particularly gloomy about Germany’s Russian – gas dependent economy, forecasting it would contract 0.7% next year, slashed from a June estimate of 1.7%.
The ripples of Russo-Ukraine war, if prolonged would not spare even the US economy. The Forbes reported in September that the US GDP contracted at a seasonally-adjusted annual rate of 0.9% in the second quarter of 2022, after dropping by 1.6% in the first quarter of 2022. Amid weak growth figures, now there is an ongoing debate whether the US would be able to avert a looming recession.
The US economy is facing the heat of war, albeit indirectly. Supply chain disruptions in Asia and economic sanctions against Russian oil and gas have exacerbated the US inflation problem that began in 2021. The Personal Consumption Expenditures (PCE) index rose 6.3% year-over-year in July. This marks an increase of 4.6% over the previous year’s figure. Consumers are feeling the brunt of increased costs for everyday goods and services. In response to alarming inflation the Fed has raised the federal funds rate substantially this year, including 75 basis points rate hikes in June, July and September. The US consumers account for nearly 70% of the overall economy, and consumers are getting squeezed by higher gas prices, interest rates, and grocery bills. In June, the University of Michigan’s surveys of consumer sentiment index fell to its lowest level dating back to 1970s and have only slightly recovered subsequently. These are some early signs of recession knocking at the doors of US.
The impact of the Ukraine war is also slowly revealing in the developing countries including the emerging economies like India, China and Brazil, whose growth rates have been slashed by recent global economic outlook of the IMF and World Bank’s forecast. But the most appalling impact of war could be seen in the poor African nations which are facing famines, floods and starvation. The war has sapped all attention and resources towards Russia-Ukraine war while countries like Somalia, Ethiopia, Nigeria, Kenya and South Sudan are facing the worst draught and floods in 40 years. A UN-FAO report says “The severe drought in the Horn of Africa has pushed people to the brink of starvation, destroying crops and killing livestock on which their survival depends. The new hunger spots like Afghanistan, Pakistan, Guatemala, Honduras and Malawi have been added to the list of countries joining Sri Lanka, Zimbabwe and Madagascar after Ukraine war led shortages and increased price levels. The report points out, “the persistently high global prices of food, fuel and fertilizer continue to drive domestic prices and economic instability.
The Russo-Ukraine War must stop by finding a negotiated and peaceful settlement as soon as possible. Lives matter more than “a war for hegemony”-directly by Russia and indirectly by the Western powers. The prophetic remarks of the Indian Prime Minister is now getting global support. Even former American President Donald Trump has made a call to stop the war and peacefully settle the dispute between the warring parties under his “Save America” call. The voice for peaceful and negotiated settlement as India has called for from the beginning of the war is now gaining global support. Negotiations, nevertheless, require addressing each-other’s concerns, which does not appear happening at least for now. It is a bad news for everybody.