By: Staff Writer
April 12, 2022
There Inter-American Development Bank (IDB) said that prior to the Russia/Ukraine conflict the region was moderately rebounding from the COVID-19 pandemic and subsequent economic shutdown, but the conflict exacerbated long-standing issues.
The IDB, in its recently released, “Macroeconomic Report: From Recovery to Renaissance: Turning Crisis into Opportunity,” said that in the months prior to the Russia/Ukraine war GDP was rebounding but employment was lagging behind it due to the fact that newer technologies came to the fore during the pandemic that made manual labour less desirable in the long term.
The report also said: “The global economy recovered strongly in 2021 at an estimated 5.9 percent, some 0.4 percent higher than anticipated in January of that year. In January 2022, before the Russia-Ukraine conflict began, projections for 2022 global growth at 4.4 percent remained above average values.”
In continued, with regard to the lingering COVID-19 pandemic, “As 2021 ended, the rapid spread of the omicron variant through southern Africa, Europe, the United States, and elsewhere sparked a new wave of economic uncertainty. This new, highly transmissible variant has made it clearer that the COVID-19 virus will likely be around for the medium or long haul and will need to be managed for the foreseeable future, rather than assuming it can be eradicated. New variants may also arise and could be even more transmissible than the original omicron. Worse yet, they could mutate in such a way as to evade the benefits of vaccines or fast acting therapeutics.”
As a result of the lingering COVID-19 impact on manufacturing and the production of goods, inflation has spiked due to a lack of supply coupled with climbing demand as people returned to work. All of this has been made worse by the Russia/Ukraine conflict putting pressure on global oil prices.
The report also said: “There was optimism that the inflation spike would be temporary, as pent-up demand waned and supply constraints loosened. However, it has proved to be more persistent than expected; the Russia-Ukraine conflict with its effects on commodity prices will further impact inflation.
“The impact on labour markets has been exacerbated by what has become known as the “great resignation,” with over two million workers reportedly choosing to leave the labor market. The impacts on labour participation have been especially acute in the contact sectors, particularly retail, health, and education.”
The report also said: “The resurgence in global demand pushed commodity prices to higher levels, and many prices surpassed pre-pandemic levels. The Russia/Ukraine conflict then provoked another sharp rise in the prices of commodities including crude oil and soybeans. The future course of commodity prices will depend critically on how the conflict develops.”
The report noted: “Now, policymakers must also consider the impacts of both the Russia-Ukraine war and policy normalization in advanced economies to develop an appropriate policy stance in the coming months. This is no easy task as multiple shocks have pulled in different directions.
They pointed to two scenarios, “The first scenario considers specific shocks to the global economy due to the war between Russia and Ukraine. The scenario combines negative shocks to growth in the Eurozone and the United States with a positive shock to commodity prices. These shocks are understood to be in relation to the pre-war scenario as outlined in the IMF’s January World Economic Outlook (IMF, 2022).
“In this second and more negative scenario, growth would be reduced from 2.1 percent to 1.2 percent in 2022 and in 2023, growth in the region would be negative (-0.4 percent). The region recovers in 2024 to 1.3 percent and thereafter converges back to longer-term growth.
“The negative scenarios demonstrate the current risks to the region of the war and a more aggressive monetary policy normalization than is currently anticipated. Tremendous uncertainty surrounds both the war and its economic impacts and the need for more aggressive policy normalization. These scenarios are only indicative and depend critically on the underlying assumptions.”
The headwinds are strong for the region, but contingent on how the larger economies deal with the fallout from the Russia/Ukraine conflict and continue their rebound from the COVID-19 pandemic.