Russia-Ukraine War: India still fastest growing major economy, at 6.4% in 2022, says UN

Virendra Pandit

New Delhi: India, the fastest-growing major economy, may grow at 6.4 percent in 2022—a downward change of 0.3 percent since January—and 6 percent in 2023, in contrast with the global growth rate forecast at 3.1 percent in these two years, the United Nations has said.

While the long-term impact of the Russia-Ukraine war on the global GDP is emerging, India may still grow by 6.4 percent in 2022, slower than the last year’s 8.8 percent but still the fastest-growing major economy, with higher inflationary pressures and uneven recovery of the labor market curbing private consumption and investment, the media reported.

The war in Ukraine in all its dimensions is setting in motion a crisis that is also devastating global energy markets, disrupting financial systems, and exacerbating extreme vulnerabilities for the developing world, UN Secretary-General Antonio Guterres warned.

“We need quick and decisive action to ensure a steady flow of food and energy in open markets, by lifting export restrictions, allocating surpluses and reserves to those who need them, and addressing food price increases to calm market volatility,” he added.

The UN Department of Economic and Social Affairs said in its World Economic Situation and Prospects (WESP) report on Wednesday that the inconclusive Russia-Ukraine conflict, which began on February 24, has upended the fragile economic recovery from the pandemic, triggering a devastating humanitarian crisis in Europe, increasing food and commodity prices and globally exacerbating inflationary pressures.

Now, the global economy may likely grow by only 3.1 percent in 2022, down from the 4.0 percent growth forecast in January 2022. Global inflation may increase to 6.7 percent in 2022, twice the average of 2.9 percent from 2010-to 2020, with sharp rises in food and energy prices, it said.

In view of the ongoing war, higher commodity prices and potential negative spill-over effects from monetary tightening in the United States, the outlook in South Asia has deteriorated in recent months.

It projected the regional economic output to expand by 5.5 percent in 2022, 0.4 percentage points lower than the January forecast.

India, the largest economy in South Asia, may grow by 6.4 percent in 2022, well below the 8.8 percent growth in 2021, as higher inflationary pressures and uneven recovery of the labor market will curb private consumption and investment, it said.

Hamid Rashidi, the lead author of the report, said high inflation affects almost all regions in the world except for East Asia and South Asia. India is in a little better position, as it did not have to aggressively pursue monetary tightening compared to other countries in Latin America.

“We expect Indian recovery to remain strong in the near term, in the next year and two, but again, we cannot completely discount the downside risk that would come from external channels. So that risk is still there,” he said.

Higher prices and shortages of farming inputs, including fertilizers, may persist in South Asia, negatively impacting the agricultural sector in Bangladesh, India, Pakistan, and Sri Lanka, probably resulting in weaker harvests and exerting further upward pressures on food prices in the near term, the report said.

Along with higher energy prices, elevated prices of food may increase food insecurity across the region. Consumer price inflation in the region could speed up from 8.9 percent in 2021 to 9.5 percent in 2022.

Tighter external financial conditions will adversely affect regional growth prospects, especially for countries with high exposure to global capital markets facing debt distress or risks of debt default.

The pandemic had already left many countries with large fiscal deficits and higher and unsustainable levels of public debt. Sri Lanka is currently facing a debt crisis and discussing a new IMF-supported program to bring its economy out of the crisis, it said.

The downgrades in growth prospects are broad-based, including the world’s largest economies, like the United States, China, the European Union, and most other developed and developing economies, it said.

The growth prospects are weakening, particularly in commodity-importing developing economies, driven by higher energy and food prices. Worsening food insecurity compounds the outlook, especially in Africa, it added.

Growth forecasts for the United States, European Union, and China have all been revised downward. The EU’s economy, most directly hit by disruptions in the energy supply from the Russian Federation, may now grow by 2.7 percent in 2022, down from 3.9 percent expected in January.

The United States may grow by 2.6 percent in 2022 and 1.8 percent next year, while China could grow by 4.5 percent, and 5.2 percent in these two years. The developing countries, as a group, are projected to grow by 4.1 percent in 2022, down from 6.7 percent in 2021, the report said.