Like a smooth sail on the Atlantic Ocean, the global economic prospects looked promising and on track until the sudden hit by the COVID-19 pandemic waves, which led to major lockdowns, disruptions in production, creating major economic declines, eroding the fiscal space of most countries as COVID related spending increased, and ultimately leaving most countries in high debts.
Through medical support, the severity of the pandemic spread became manageable and the global economy was about to set sail again. Production resumed and the global economic recovery was projected to become strong after the impact of the Omicron Variant.
But like a seismic wave that emanates from the epicenter of an earthquake, Russia invades Ukraine. This Russia- Ukraine invasion is deteriorating the global economic recovery outlook resulting in tragic destruction of lives and infrastructure, migration of about 4 million Ukrainians to Europe, creating humanitarian crises and economic pressures in Europe. Russia on the other hand has received sanctions aimed at ending its war motives and attacks. The sanctions have led to closures in trade ties between Russia and other countries, loss of confidence and reexamining of domestic financial intermediation. With Russia being a major supplier of oil, gas and metals and Ukraine exporting wheat and corn, we are seeing major global supply shortages of commodities. The spillover economic effect of the war is spreading mainly through the commodity market, trade, and financial linages.
Accompanying the Russian-Ukraine invasion and its disturbing impacts is the recent lockdown in China affecting both households and manufacturing hubs. Economic activity is on the decline giving rise to major setbacks in global supply chains. China’s economy is projected to decline from an 8.1% growth in 2021 to 4.4% in 2022.
Sitting at the exterior of these happenings are countries in the Emerging and developing economies including Sub-Saharan Africa. What are the ramifications for economies and businesses? Are there concerns to note?
A major concern here is inflation which is causing central banks to further tighten their monetary policies with high interest rates thereby limiting access to credit and increasing capital outflows. The current Russia- Ukraine invasion is bringing about higher and persistent prices in the commodity market especially in fuel and food prices, with some countries reaching their highest levels in more than 40 years. It is worth noting that these high prices are expected to be much larger in Emerging Market and Developing Economies than in Advanced Economies due to the large dependence by these economies on both Russian and Ukrainian exports. Nonetheless, the food and fuel price increases will hurt lower-income households globally including those in the Americas and Asia.
Economic prospects are becoming volatile and policy trade-offs forecasted to become more challenging. The global economy is projected to shrink from an estimated 6.1% in 2021 to 3.6% in 2022. Sub-Saharan Africa’s growth is projected at 3.8% in 2022 from the 4.5% projection in 2021, with Ghana’s growth projected from 4.2% in 2021 to 5.2% in 2022. Increase in oil prices has lifted growth prospects for West Africa region oil exporters like Nigeria. Ghana’s growth is projected to remain strong in the medium term mainly due to Agriculture, services, and relatively strong industry sector.
Suffice it to say that rising food and energy prices increases the risk of domestic social unrest particularly in Emerging and developing economies, of which West Africa and Ghana is of no exception. Food plays a major part of consumption, and transportation cost is dependent on fuel prices. Hence, higher fuel and food prices will affect consumers’ purchasing power which can result in civil unrest and other forms of civil disorder. There is also the possibility of intensified commodity hoarding, export controls, and domestic restrictions which further has knock-on effects on supply disruptions and prices. Bottlenecks are expected to eventually ease as production elsewhere responds to higher prices and new capacity becomes operational. All these elements are increasing the sensitivity of the economy to souring investor sentiment.
Bridgewater Insights | 1st June 2022
