G-7 focuses on crises’ impact on economy
BONN, Germany — The financial leaders of the world’s most powerful countries warned last 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.
“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 percent 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 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.
The G-7 conference yielded limited action to head off these emerging threats to the global economy. In closed-door discussions Thursday and Friday, world leaders resolved to take largely unspecified action on debt management in developing countries, global economic stability and taming inflation. Their most tangible action was to pledge roughly $20 billion in economic assistance to Ukraine.
“The situation of low-income states poses risks to global security and stability of the international financial system,” Christian Lindner, Germany’s finance minister, told reporters. “We will have to deal with the situation.”
Linder later added: “This is a risk for international financial stability, and it gets even worse if these countries get into financial difficulties (surrounding) food security in their countries.”
That hunger crisis could get worse. More than 14 million people in Somalia, Ethiopia and Kenya — half of them children — are “on the verge of starvation,” according to the International Rescue Committee. That number is projected to rise to 20 million by mid-2022 without substantial global action.
During the G-7 meetings, American and French officials were most vocal on the need to address the hunger crisis, according to three people familiar with the meeting.
“It’s significantly, significantly worse than it was even at the beginning of the COVID recession, even though they’re not talking like it is,” said Max Lawson, head of inequality policy at Oxfam International, a humanitarian aid group. “The impact we are seeing already in the developing world is hideous and painful, and it’s happening right now.”