The fragile recovery from the crisis stemming from the COVID-19 pandemic and the effects of the war in Ukraine prompted the UN Department of Economic and Social Affairs (DESA) to lower its global growth outlook for this year to 3.1%, down almost one percentage point from the 4 % it had forecast in January 2022.
"The global economy faces significant downside risks from further escalation of the war in Ukraine, new waves of the pandemic and faster-than-expected monetary tightening in developed economies," DESA says in its mid-year projection update report, released on Wednesday.
The study explains that while the downgrades include major powers such as the United States, China and the European Union and most developed countries, commodity-importing developing countries will be the hardest hit, especially through higher food and energy prices.
The paper also highlights that food insecurity will worsen in Africa.
According to DESA experts, the conflagration in Ukraine has impacted the fragile recovery from the COVID 19 pandemic, triggering a devastating humanitarian crisis in Europe, increasing food and commodity prices and exacerbating inflationary pressures worldwide.
Global inflation is expected to reach 6.7% this year, more than double the rate of 2.9% recorded in the period from 2010 to 2020.
Inflation in the United States is at its highest level in four decades and is rising in many countries in West Asia, Latin America and the Caribbean and the Commonwealth of Independent States.
"Rising inflation poses an additional challenge to an inclusive recovery, as it disproportionately affects low-income households," DESA notes, stressing that the decline in real incomes is particularly notable in developing countries, where poverty is more prevalent, wage growth is flat, and fiscal support measures to alleviate the impact of higher oil and food prices are more limited.
It also warns that rising food inflation is exacerbating food insecurity and pushing millions of people below the poverty line in many developing countries still suffering from the economic effects of the pandemic.
"Rising poverty will inevitably exacerbate inequality in a very short time, both within and between countries," the report says.
Moreover, it notes that growing geopolitical and economic uncertainties are undermining business confidence and that rising costs of money are undermining investment prospects.
Adjusted growth estimates indicate that the US would achieve only 2.6% this year, down more than three points from 5.7% in 2021. China, meanwhile, would advance by 4.5%.
As for the European Union, the report details that the war in Ukraine and the sanctions imposed on Russia hit not only the Russian and Ukrainian economies, but all the countries of the Commonwealth of Independent States, including those belonging to the European bloc.
Inflation in the energy markets has also had a major negative impact on the Union, which in 2020 imported 57.7% of its energy, 25% of which came from Russia.
In this regard, DESA stressed that a sudden interruption of oil and natural gas flows from Russia would further increase energy prices and exacerbate inflationary pressures in the countries of the bloc.
Eastern European and Baltic states suffer from inflation rates well above the EU average.
As a result, growth in the European economy will be just 2.7% in 2022.
For developing countries, DESA forecasts a 4.1% increase in GDP this year, but anticipates a widening of the fiscal deficit caused by rising borrowing costs.
"Tighter external financial conditions will negatively affect growth prospects, especially for countries with high exposure to global capital markets with large debt burdens or at risk of default," it says, adding that this outlook is compounded by worsening food insecurity, especially in Africa.
The study emphasises that food and energy inflation hinder an inclusive recovery because they disproportionately affect low-income households, which spend a much higher proportion of their income on food.
"Developing countries will need to prepare for the impact of aggressive tightening by the US Federal Reserve and take appropriate macroeconomic measures to stem capital flight and stimulate productive investment," said Hamid Rashid, head of DESA's Global Economic Monitoring Branch, launching the report.
The text devotes a section to the impact of the war in Ukraine on climate change and mitigation actions, noting that the conflict comes at a time of record global CO2 emissions and warning that high energy prices will pose a major obstacle to efforts to address the climate emergency.
As countries seek to expand their energy supplies to offset high oil and gas prices, fossil fuel production is likely to increase in the short term.
Similarly, high prices for nickel and other metals may negatively affect electric vehicle production, while rising food prices may limit the use of biofuels.
Despite this scenario, DESA said that countries have the opportunity to address their energy and food security concerns by accelerating the adoption of renewable energy.