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Due to the conflict in Ukraine, India’s GDP growth for 2022 has been lowered to 4.6 percent, according to a UN report.

Due to the conflict in Ukraine, India’s GDP growth for 2022 has been lowered to 4.6 per cent, according to a UN report.

According to a UN report released on 24th March, India’s forecasted economic growth for 2022 has been downgraded by more than 2% to 4.6 per cent, a decrease attributed to the ongoing war in Ukraine. New Delhi is expected to face restrictions on energy access and prices, along with trade sanctions, food inflation, tightening policies, and financial instability.

According to the report, the currencies of Brazil, Russia, India, and China account for less than 3.5 per cent of the USD 6.6 trillion daily turnovers in the currency markets, a ratio that is less than one-tenth of the forty-four per cent held by the US dollar.

According to UNCTAD, the prolonged conflict in Ukraine is likely to worsen the monetary tightening trend in industrialized nations, following similar actions that began in late 2021 in numerous developing countries due to inflationary pressures, with future budget cuts are also expected. Due to revelations from the Ukraine crisis and changes in macroeconomic policies that put developing nations in particular at risk, the UN Conference on Trade and Development has lowered its global economic growth prediction for 2022 to 2.6 %from 3.6 %.

Russia- Ukraine War

The Russian invasion of Ukraine has come at such a critical time for the global economy, and the economy is still staggering from the effects of coronavirus. As global markets fall and the price of oil rises, the war with Russia might have a far-reaching economic impact. According to certain Western reports, now that the capital’s air defences have been withdrawn, the capital might fall at any time. A troubling parallel might be drawn with the 1973 Yom Kippur war in the Middle East, which resulted in an oil crisis and shook the world economy to its bases.

Over the last decade, stock markets have stayed extraordinarily healthy, with annual gains of about 10% on average. Stocks had already begun to tumble this year when central banks stated that they would withdraw their assistance, and markets have continued to fall since Ukraine was invaded. Many people who own stocks or other assets have a “wealth effect,” in which they feel more confident about spending money, especially on large purchases. Weaker markets would thus have an impact on economic development as well as the viability of many people’s pension plans.

Ukraine war news from February 28: Russian forces bombard Kharkiv, Ukraine  holds on to major cities, talks end without ceasefire | Financial TimesThe cost of living will worsen due to high and rising inflation, which is already affecting many consumers. It also poses a problem for central banks, which have been pumping money into the economy for the past two years to combat the pandemic. And now, these banks are planning to withdraw their support. Especially if inflation continues to climb and central banks respond with sharp increases in interest rates, it will further weaken the economy. Now because Russia and Ukraine are among the world’s largest wheat exporters, and many people rely on Russian oil and gas, energy and food costs may continue to climb. 

While some other economies in South and Western Asia may profit from the rapid increase in energy demand and pricing, they will be impeded by adversities in primary commodities markets, particularly food inflation, and will be further harmed by underlying financial instabilities according to the paper. Due to revelations from the Ukraine crisis and changes in macroeconomic policies that put developing nations in particular at risk, the UN Conference on Trade and Development has lowered its global economic growth prediction for 2022 to 2.6 per cent from 3.6 per cent.

European gas prices have inclined as a result of increased sanctions on Russia over its invasion of Ukraine, in addition to concerns about supply disruptions. It has reignited speculation about the future of European energy, particularly about the natural gas supply. Within a few years, the European Union plans to completely take a step back to Russian supply. It’s a tall order, given that Russian gas accounts for over a third of the continent’s gas consumption. The proposal calls for a significant increase in purchases of liquefied natural gas from non-Russian producers. However, the extent to which global LNG supply can increase is limited, putting Europe at a disadvantage.

About 40% of Europe’s natural gas comes from Russia, with the majority of it being carried by the pipeline. According to Rystad Energy, 52 billion cubic meters (bcm) of gas is sent to Europe each year via Ukraine or neighbouring routes, with total Russian deliveries to Europe ranging from 150 to 190 bcm. Some pipelines pass through Ukraine, but others, such as Yamal-Europe, which runs through Belarus and Poland to Germany, and Nord Stream 1, which flows beneath the Baltic Sea to Germany, take alternate routes. In recent years, most European countries have depreciated their dependency on Russian gas. In 2021, the Ukraine transit corridor was mostly utilized to transport gas from Ukraine to Slovakia, Austria, and Italy. 

A confluence of circumstances dampened demand among traditionally large LNG consumers in the immediate aftermath of the Ukraine incursion, allowing supplies to flow to Europe. North Asia has had a moderate winter, and rains in Brazil have helped the hydroelectric power supply. However, a tug-of-war over cargoes is predicted to continue in the second quarter.

Surging food and fuel prices will have an immediate impact on the poorest people in developing countries, leading to hunger and suffering for those whose primary source of income is food. However, everyone will eventually feel the loss of purchasing power and actual spending. “The concern for many developing countries that are heavily reliant on food and fuel imports is most severe,” and according to the research, “since increased prices endanger livelihoods, discourage investment, and create the specters of growing trade imbalances.”

Russia-Ukraine War Highlights: India abstains in UNGA on resolution by  Ukraine, allies on humanitarian crisisSeveral countries could aim to replace any energy supply gaps by importing electricity from neighbouring states via interconnectors or increasing power generation from nuclear, renewables, hydropower, or coal. The European Commission announced this week that gas and LNG from the United States and Qatar might replace 60 billion cubic meters (bcm) of Russian gas in Europe this year. Increased use of biomethane and hydrogen by 2030 could also help.

Some oil tank owners defer taking on Russian petroleum until penalties are clarified. Major gas pipelines pass across Ukraine and could be damaged due to the conflict, and even a minor disruption in supplies could exacerbate the price shock.
Russia may react by cutting off the gas flow to Europe if it faces maximum sanctions from the US and Europe, such as being kicked out of the Swift system of international payments.

Well, the alternatives aren’t limited to the ones listed above. They’re focusing on the world’s largest sophisticated economies, but commodity price hikes will affect countries all over the world, including basic staples like wheat and energy.

New wind and solar projects could replace 20 billion cubic meters of gas demand this year while tripling capacity by 2030, adding 480 gigawatts of wind and 420 gigawatts of solar, which could save 170 billion cubic meters each year. Turning down thermostats by 1°C this year might save 10 bcm, while replacing gas boilers with 30 million heat pumps by 2030 could save 35 bcm, according to the Commission.

India GDP Growth: GDP boosted by base effect and vaccination, economists  peg Q2 growth at 6.5-9.9% - The Economic TimesAccording to the (UNCTAD) research, the additional pressure of prices increases is escalating calls for a policy response in advanced countries and notably on the budgetary front, threatening faster than expected slowness in growth. This war has increased the pressure upward on worldwide energy and primary commodities prices, stretching household budgets and rising production costs. At the same time, trade disruptions and punishments are expected to chill investment in the long term. The geopolitical crisis has shattered confidence in the United States of America, just as pandemic-related disruptions appeared to be subsiding.

Increasing food as well as fuel prices will have an immediate impact on the poorest people in developing countries while causing hunger and suffering for families that spend the majority of their money on these items. As per UNCTAD, the prolonged conflict in Ukraine is likely to deepen the monetary tightening trend in industrialized nations, following similar actions that began in late 2021 and numerous developing countries due to inflationary pressures, with future budget cuts are also expected.

UNCTAD is worried that a combination of weakening global demand, insufficient international policy coordination, and high debt levels as a result of the pandemic will cause financial shockwaves by pushing some developing countries into a downward spiral of insolvency, recession, and stalled development. According to UNCTAD Secretary-General Rebeca Grynspan, the economic impact of the Ukraine war would exacerbate the global economic slump and stymie recovery from the COVID-19 epidemic.

According to the report, the currencies of Russia, India, Brazil, and China account for less than 3.5 per cent of the dollar 6.6 trillion daily turnovers in the currency markets, a ratio, i.e., less than one-tenth of the 44 % held by the US dollar. A small section of central banks in emerging countries bought private sector bonds. Still, public bond purchases were more common: the central banks of India, Colombia, Thailand, and South Africa, among others, bought public bonds.

The Great Lockdown & its Impact on the Indian EconomyIn today’s global monetary hierarchy, a national currency’s position is determined more by the size of its domestic financial sector than by the size of its domestic manufacturing base.

As per UNCTAD research, the added pressure of price increases is intensifying calls for a policy response in advanced countries, notably on the budgetary front, threatening a harsher than predicted slowdown in growth. Surging food and fuel prices will have an immediate impact on the poorest people in developing countries, leading to hunger and suffering for those whose primary source of income is food. However, everyone will eventually feel the loss of purchasing power and actual spending.

Edited by Prakriti Arora

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