According to Bloomberg News, the economy across the globe is at the risk of stagflation and impending recession as prices of metal, food, and fuel escalate after Russia’s Ukraine invasion.
The impending risks of recession
Following fresh speculations that the government might impose sanctions on the energy supplies of Moscow caused the price of oil to become $130 per barrel at one point. The price of gas in Europe continued to be higher after it became doubled last week, and the cost of wheat is at a record price after the exit of Ukraine as one of the top suppliers of the crop. Other metals, copper and palladium, kept rising as well.
The economists at JPMorgan and Barclays Plc are the ones that have kept the forecast lowered for growth across the globe and increased them for the consumer prices. Both are expecting that there might be an expansion accounting for a percentage point weaker in comparison to inflation by a percentage point stronger in comparison.
Stagflation, it is expected, will sharpen trade-offs between inflation and expansion. To offset the pain, governments face pressure through greater spending, for instance, to protect the poor from higher energy costs with subsidies. Meanwhile, the central banks have to tread cautiously even as the US Federal Reserve appears to set so that the interest rates are raised.
Bloomberg News reports that the International Monetary Fund has warned of severe economic consequences because of the war. Goldman Sachs Group Inc. analysts anticipate that a sustained $29 shock in oil price would make the gross domestic product plunged by 0.6% in the euro region and about 0.3% both in China and United States.
Cutting off shipment of gas through Ukraine would mean 1% off euro area gross domestic product, whereas if the entire Russian gas is lost, it would mean 2.2% hit as per economists. The economists anticipate that a complete shutting off of Russia’s 4.3 million barrels per day of oil exports to the United States and Europe would reduce global gross domestic product by three percentage points.
There are a lot of shock absorbers in there as well. The omicron variant of coronavirus is in retreat, and households and business entities have built up their savings. China’s growth target is 5.5% in 2022, which is also the higher end of many economists’ projections.
Bloomberg News reports that this is not the first time that skyrocketing oil prices have adversely impacted global growth. There was a doubling of crude price during 1973 and 1974, 1978 and 2007-2008, all warning signs of recession.
Paul Donovan, the chief global economist with UBS Wealth Management, stated that the overall result would perhaps only partially be the same as 1970s stagflation.
