Global leaders warn of economic dangers as crises multiply
BONN, GERMANY » The financial leaders of the world’s most powerful countries warned this week of the potential for a global economic slowdown, as the threats caused by Russia’s invasion of Ukraine continued to multiply.
Globally, the war is sending energy and food prices soaring. In the United States, Britain and Europe, central banks determined to curb inflation are moving to hike interest rates, which risks pushing nations into recession. The developing world faces an emerging debt crisis on top of a growing hunger problem sparked by the war.
In the United States, as in much of the rest of the world, gasoline prices surged and stock markets plunged, with the S&P 500 index nearing a bear market, closing the week down 18 percent off its early January peak after a late Friday rally. Large retailers, including Target and Walmart, have reported worse than expected earnings and profits this week, blaming higher costs and excess inventory that piled up in response to supply chain problems.
“If I had to sum it up: more uncertainty, more inflation, less growth,” François Villeroy de Galhau, the governor of the Bank of France, said of the impact of the war, at a conference here of finance minsters and central bankers from the powerful Group of Seven industrial nations.
After approving trillions of dollars in fiscal stimulus
to avert the downturn caused by the coronavirus pandemic, world economic leaders are now grappling with the threat of “stagflation” - slow, or negative, economic growth, coupled with rising inflation.
The risks abroad may be even greater than in the United States, economists say. In Europe, the euro zone only grew by 0.2% in the first quarter of 2022, suggesting a potential slowdown. Some economies within Europe even shrank: Italy’s, for example, contracted slightly in the first quarter of this year.
The war poses a more serious economic threat to Europe than to the United States, particularly given the continent’s dependence on Russian energy, said Jason Furman, a former Obama administration
economist. China’s efforts to contain the coronavirus also continue to rattle the global economy, with the latest data from Beijing showing a major decline in retail spending and a drop in gasoline output.
Russia’s economy is doing even worse since the war began, though: The White House says it expects Russia’s gross domestic product to shrink by as much as 15% this year due to the sanctions imposed after the invasion, despite Moscow’s profits from rising energy prices.
The World Bank has also warned of a “huge buildup of debt,” particularly in the poorest countries, with debt payments at their highest level in 20 years. Half of low-income countries are now categorized as being at “high risk” of debt distress,
according to the Center for Global Development, a Washington-based think tank. Defaults by poorer nations could have ripple effects throughout global financial markets if creditors worldwide go unpaid.
“This is a very difficult economic situation,” Treasury Secretary Janet Yellen said after the conference Wednesday night. Yellen said economic shocks from the war, additional sanctions on Russia and further inflationary pressure were all possible. But she, like many European officials, still held out some hope that policymakers would be able to handle the difficult circumstances.
The global economy, particularly the United States, was projected to grow relatively quickly in 2022 before