Ukraine’s Invasion May Cause a Global Recession

“We’re preparing for a continued crisis response, given the multiple crises; over the next few weeks, I expect to discuss with our board, a new 15-month crisis response envelope of around $170 billion to cover April 2022 through June 2022,” World Bank President David Malpass said. 

He suggested that the war initiated by Russia in Ukraine will impact not only food and energy prices but also the availability of fertilizer, around the world. In turn, it may also trigger a global recession. 

Malpass added that “As we look at the global GDP… it’s hard right now to see how we can avoid a recession.” All this was said without giving a specific forecast.

The big picture

Gross Domestic Product (GDP) is a metric for measuring economic growth. Economists and central banks keep a close eye on it since it is one of the most essential means of determining how well or poorly an economy is operating. Based on GDP, companies can determine whether or not to expand and hire more people, or to spend less and reduce their staff. 

Governments also use GDP to influence choices on everything from taxation to expenditure. It, along with inflation, is a significant indicator for central banks when deciding to raise or cut interest rates.

Therefore, GDP heavily influenced the World Bank’s recent cut to its global growth forecast for 2022. The numbers went from 4.1% down to 3.2% due to the pandemic inflation and “policy uncertainty.” World Bank President David Malpass mentions many should expect a major impact.

Meanwhile…

Malpass mentioned that the Chinese lockdowns affecting important parts of the country added to the global uncertainty – economically speaking.  China’s premier Li Keqiang adds that as the second-largest economy in the world, the country was hit harder by the recent lockdowns in comparison to the beginning of the pandemic back in 2020. Premier Li called for officials to take more action regarding the re-opening of factories post-lockdown.

Many European countries, according to Mr. Malpass, are still unduly reliant on Russian oil and gas. “The idea of energy prices doubling is enough to trigger a recession by itself,”  he warned. Plus, higher energy prices were already dragging on Germany, which is Europe’s and the world’s fourth-largest economy, claimed Malpass. 

He predicted that the economies of Ukraine and Russia would decline significantly, while Europe, China, and the United States would develop more slowly. Also, developing countries will be struck much harder due to a lack of fertilizer, food reserves, and energy sources.

All in all, Malpass didn’t say any details in terms of when a worldwide recession may start.