NEFPORT ISSUE 49 – JUNE 2022
International Economy
FACTSHEET World GDP growth (2022)
3.6%25 Global trade growth (2022)
As the global economy is gradually recovering from the supply constraints in the aftermath of the COVID-19 pandemic, the war breaking out in Ukraine further poses risks and uncertainty on the post-pandemic global recovery. Among many international institutions, the International Monetary Fund (IMF) has reduced its global growth forecast for 2022 to 3.6%, citing the adverse impacts of the war. Amid sanction by the United States of America (USA) and the European Union (EU) on Russian exports, prices of energy and food grains have touched an all-time high, leading to increasing pressure on global inflation level. Major central banks around the world have started to shift from ultra-loose policy to tightening policy to curb inflationary pressure, therefore hindering global growth. Although the flow of remittance shows a positive trend, the World Trade Organization (WTO) expects sub-optimal growth in global trade, due to strict lockdown measures imposed in China as coronavirus cases persists, consequently limiting trade. GLOBAL EVENTS UPDATES Russia Declares War on Ukraine Russian President, Vladimir Putin announced special military operation in Ukraine on February 24, 2022. Following the announcement, the United States (US) and the European Union (EU) has imposed sweeping sanctions on Russia. The sanctions are aimed at hobbling the Russian economy to exert pressure to end the conflict. Measures include limiting trade, banning transactions with Russia's central bank, barring access to the
international payments system (SWIFT), and cutting off access to Russia’s foreign currency reserves.27 The sanction led to the depreciation of the Ruble and the loss in value of the Russian stock market. It also led to a record high in prices of global crude oil and major commodities, such as wheat and fertilizer.28 The G7 countries stated, that the sanctions were beginning to have the intended impact on the Russian economy.29 However, the ban on Russian energy export has led to pressure on global inflation levels.30 Additionally, The USA and the EU have imposed
2.7%26
new sets of sanctions including ban on Russian media channels,31 and a complete ban oil imports from Russian to the EU region.32
COVID-19 Lockdown Hits China A new wave of the coronavirus infection has hit China since April 2022, with the number of cases rising in major cities like Beijing and Shanghai. To curb the infection, the authorities have adopted the ‘Zero COVID-19 Policy’, imposing strict lockdown measures in the cities.33 It has hampered China’s growth rate in the first quarter, as the Chinese economy grew by just 4.8% against the target of 5.5%.34 The lockdown has exacerbated the situation by disrupting the global supply chains, as manufacturing activities suffer due to the deadlock. The closure of major ports of the country has resulted in lower global trade, thereby resulting in a shortage of commodities across the globe and fueling global inflation.35
ECONOMIC CRISIS UPDATES Humanitarian Crisis in Sri Lanka The current situation in Sri-Lanka started as an economic crisis, which turned into a political turmoil and is moving towards
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