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.
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 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.
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 percent 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
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 G-7 leaders also resolved in a joint statement to take action related to Sri Lanka’s debt crisis and alleviate food shortages. They pledged as well to keep international markets open, as some countries move to impose export controls to prevent scarce supplies of food and other goods from leaving their countries. World economic leaders in Bonn emphasized that they understood the extent of the dangers, but also acknowledged they may not be prepared to resolve them
