5 unprecedented events that overturned earlier projections for 2022
By Zion Rufus
The Russia-Ukraine crisis, alongside other unprecedented trends, has overturned earlier projections for the year 2022. From an estimated 6.1% in 2021, and 4.4% in January 2022, recent projections by the International Monetary Fund (IMF) has seen global growth dropping to 3.6%.
Russia-Ukraine Crisis
The economic impact of the war in Ukraine has thrown the rest of the world into a period of uncertainties. Currently, Energy and commodity prices have surged, adding to inflationary pressures from supply chain disruptions and the rebound from the Covid‑19 pandemic.
Price shocks have an impact worldwide, especially on poor households for whom food and fuel are a higher proportion of expenses. Should the conflict escalate, the economic damage would be all the more devastating. In the same vein, sanctions on Russia already have a substantial impact on the global economy and financial markets, with significant spillovers to other countries. This crisis has altogether created complex policy tradeoffs, further complicating the policy landscape as the world economy recovers from the pandemic crisis.
According to the IMF, the war also increases the risk of a more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies.
Inflation: Oil and gas price
The Russia-Ukraine war has also dealt a major shock to commodity markets, altering global patterns of trade, production, and consumption in ways that will keep prices at historically high levels through the end of 2024, according to the World Bank’s latest Commodity Markets Outlook report. The increase in energy prices over the past two years has been the largest since the 1973 oil crisis.
The World Bank report further revealed that energy prices are expected to rise more than 50 percent in 2022 before easing in 2023 and 2024. Non-energy prices, including agriculture and metals, are projected to increase almost 20 percent in 2022 and will also moderate in the following years.
In Nigeria, the heightened inflation has been strengthened by a fuel scarcity that is biting hard in many parts of the country as the cost of diesel continues to rise.
Inflation: Rising food and commodity prices
In March of 2022, inflation rate shot up to 15.92% in Nigeria, the highest price hike since October 2021, with prices of most commodities soaring. Cost of food increased 17.20%; prices of imported food rose 17.56 percent year-on-year in March, accelerating from a 17.48 percent advance in February, according to data shared by the National Bureau of Statistics (NBS), Nigeria.
On the global stage, food prices are expected to rise about 20% this year before easing in 2023. Risks to outlook include further supply disruptions, higher input costs, and policy restrictions, according to World Bank reports.
Geopolitical uncertainties and polarization
The global study from the Chief Economists Outlook revealed that geopolitical uncertainties as well as polarization has also contributed to driving the global economy deeper into fragmentation, with longer-term consequences for trade, prices and living standards. In combination, these shifts have resulted in the global economy entering a new phase of high volatility with fewer mechanisms for global coordination and collaboration, compounding the effects on the most vulnerable economies and individuals.
Monetary tightening and financial market volatility
The sharp rise in commodity prices, which has exacerbated preexisting inflation pressure, poses challenging trade-offs for central banks.
The International Monetary Fund highlights that repercussions of the war will continue to reverberate globally and will test the resiliency of the financial system through various channels, including direct and indirect exposures of banks, nonbank financial intermediaries, and firms; market disruptions (including in commodity markets) and increased counterparty risk; acceleration of cryptoization in emerging markets; and possible cyber-related events.
In China, financial vulnerabilities remain elevated amid ongoing stress in the property development sector and new COVID-19 outbreaks.
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