Russia’s invasion of Ukraine has knocked hopes of a strong global economic and trade recovery following the Covid pandemic, at least in the short term.
The World Trade Organization (WTO) on Tuesday lowered its forecast for global trade growth to three per cent from 4.7 per cent due to the impact of the war, warning that the most immediate fallout has been a sharp rise in commodity prices.
It also said the war could cause global GDP to grow 1.3 percentage points less than previously expected, from 4.1 per cent to 2.8 per cent.
"The war in Ukraine has created immense human suffering, but it has also damaged the global economy at a critical juncture,” the WTO’s director general, Ngozi Okonjo-Iweala, said.
“Its impact will be felt around the world, particularly in low-income countries, where food accounts for a large fraction of household spending,” she added.
Russia and Ukraine are key suppliers of essential goods including food, energy, and fertilizers – supplies of which are now threatened by the war.
Last week, the UN’s Food and Agriculture Organization said global food prices had risen to their highest level ever in March as the closure Black Sea ports throttles exports of key commodities such as wheat and maise.
Okonjo-Iweala warned that the squeeze on food supplies and higher prices would hit poor countries the hardest.
“This must not be allowed to happen…Restricting trade will threaten the well-being of families and businesses and make more fraught the task of building a durable economic recovery from Covid-19," she added in a statement.
The WTO’s economists said the uncertainty and lack of firm data on the impact of the war made the outlook difficult to predict. Its model takes into account factors including the destruction of infrastructure and higher trade costs, sanctions levied against Russia and the effect on consumer and business confidence.
The war is not the only factor, however, that is dampening the global trade outlook. Lockdowns in China due to a rise in Covid-19 cases are again disrupting trade by sea and causing supply chain bottlenecks, the WTO said. This could lead to renewed shortages of manufacturing inputs and higher inflation.
The organisation expects growth to recover to 3.2 per cent in 2023, close to the average rate of three per cent between 2010 and 2019.