Interviewee Liu Ying is a member of the Council of the Chongyang Academy of the National People's Congress, a researcher, and the director of the Collaborative Research Department, and this article was published on the cover news on April 20, 2022.
On April 20, the cover news reporter learned from the International Monetary Fund (IMF) that the latest issue of the World Economic Outlook report predicts that due to the impact of the Russian-Ukrainian conflict and sanctions against Russia, the global economic growth rate this year will be 3.6%, down 0.8 percentage points from the January forecast. Some economic experts said that the Russian-Ukrainian conflict has "worsened" the global industrial chain supply chain, the global inflation pressure continues to rise, and the world economic recovery is facing more uncertainty.
The report argues that overall economic risks have risen sharply as the conflict between Russia and Ukraine has intensified, making policy trade-offs more difficult. The downward revision of the global growth forecast reflects the direct impact of the war on Ukraine and sanctions on Russia, and the economies of the two countries are expected to shrink sharply. The EU's growth forecast was revised down by 1.1 percentage points due to the indirect impact of the Russo-Ukrainian war, which is another major factor in the downward adjustment of its overall growth rate.
▲ World Economic Outlook Report. Image source: IMF
The Russian-Ukrainian conflict has exacerbated the global supply shock
According to the IMF, Russia is the main supplier of oil, gas and metals, while Russia and Ukraine are the main suppliers of wheat and corn. The reduced supply of these commodities has led to a sharp increase in their prices. The Russian-Ukrainian conflict has exacerbated a series of supply shocks that have affected the global economy in recent years. Commodity importers in Europe, the Caucasus and Central Asia, the Middle East and North Africa, and sub-Saharan Africa are the most affected. Soaring food and fuel prices will do the damage to lower-income households around the world.
The Russo-Ukrainian war also increased the risk of a more protracted fragmentation of the world economy, which could lead to the formation of multiple geopolitical blocs with different technical standards, cross-border payment systems, and reserve currencies. This major shift will result in a long-term loss of efficiency and increased volatility.
"In the context of tensions between Russia and Ukraine, the recent sharp rise in international crude oil prices has further strengthened the upward pressure on global inflation." Liu Ying, councilor and director of the Cooperative Research Department of the Chongyang Institute of Finance of Renmin University, said in an exclusive interview with the cover news that the supply chain of many important commodity markets such as crude oil, natural gas, steel, various non-ferrous metals, fertilizers and grains has fallen into a state of chaos, and the market's concerns about the supply prospects and supply chains have been blocked, resulting in different degrees of increase in the prices of bulk commodities such as energy, metals and grain.
Liu Ying said that the us implementation of financial sanctions against Russia is a "double-edged sword", and the export restrictions on Russia's important energy, metals and raw materials have triggered an overall increase in the prices of oil and gas, grain, metals, etc. Under the impact of the epidemic, the supply of commodities that are already in short supply has been more scarce, making the supply chain and industrial chain under the epidemic "worse".
The reporter noted that the World Bank pointed out in the latest "Global Trade Watch" report that some developing countries are facing a shortage of wheat supply due to their high dependence on Ukrainian wheat exports. Countries such as Lebanon, Moldova, Djibouti, Libya, Tunisia and Pakistan were the most affected, with Ukrainian wheat accounting for about 40% or more of their wheat imports.
Inflation rises sharply The United States has reached its highest level in 40 years
Global inflationary pressures have continued to accumulate since the second half of last year and continue to climb this year. The IMF forecasts that the consumer price index (CPI) in advanced economies will rise by 5.7 percent this year and that in emerging market and developing economies by 8.7 percent, up 1.8 percentage points and 2.8 percentage points, respectively, from its January forecast. Meanwhile, the IMF forecasts a 54.7 percent increase in global oil prices this year, a 42.8 percentage point increase from its January forecast.
The report notes that inflation has become a clear and real danger for many countries. Soaring commodity prices and imbalances between supply and demand have triggered a sharp rise in inflation. Central banks such as the Federal Reserve have begun to tighten monetary policy. The disturbances associated with the war amplify these pressures. Against the backdrop of tight labor markets in the United States and some European countries, inflation has reached its highest level in more than 40 years.
IMF President Georgieva recently said that the Russian-Ukrainian conflict has spread rapidly on the economic impact and has far-reaching impact, resulting in the economic growth expectations of 143 economies around the world being lowered this year, accounting for 86% of the global economy. The Russian-Ukrainian conflict will not only increase the cost of survival for hundreds of millions of households under the double whammy of falling incomes and rising prices, but will also further exacerbate global inequality.
Liu Ying said that the Conflict between Russia and Ukraine, especially the US-EU sanctions and counter-sanctions against Russia, have pushed up the price of flour and bread in the United States, and food and energy are important components of the CPI. At the same time, the soaring prices of commodities and multiple metals will also drive the PPI (production price index) upwards.
She said that higher PPI will not only directly push up production costs, but in turn will also transmit CPI, further boosting inflation. Both sides of the Russian-Ukrainian conflict are important suppliers of global commodities, and the outbreak of conflicts between the two will lead to a contraction in the supply of commodities, thus driving prices all the way up.
▲ World Economic Outlook Report. Image source: IMF
▲ World Economic Outlook Report. Image source: IMF
How does China respond to inflation on a global scale?
"For most countries, it is expected that output will take longer to return to the level of the pre-COVID-19 trend. Most emerging and developing countries have to deal not only with the economic consequences of the war in Ukraine, but also with the traumatic effects of the pandemic. Georgieva pointed out that the top priority is to end the Russian-Ukrainian conflict, fight the epidemic, and solve the inflation and debt problems.
The IMF believes that in this difficult environment, policy and multilateral work at the national level will play an important role. Central banks must resolutely adjust their policies to ensure that medium- and long-term inflation expectations remain anchored. Clear policy communication and forward-looking guidance on the outlook for monetary policy are essential to minimize the risk of disruptive adjustments.
How should China respond to the inflation pattern that may form on a global scale? Zhang Ming, deputy director of the Institute of Finance of the Chinese Academy of Social Sciences, said that from the current situation, it is difficult for the Russian-Ukrainian conflict to be completely concluded in the short term. Through its own efforts, it is still very important for China to maintain stable and rapid economic growth.
Zhang Ming believes that as the most important importer of global commodities, it is necessary to be vigilant against the possible decline or even interruption of the supply of specific commodities; secondly, it is very necessary to find new import substitute countries and alternative products in advance; third, in the medium and long term, to promote the domestic energy revolution and industrial transformation, and reduce the dependence of economic growth and industrial development on imported commodities, is the root cause.