Stabilization of the crisis – Newspaper Kommersant No. 145 (7346) of 11.08.2022

Global food and commodity prices remain high and may continue to rise, with the financial situation in developing countries worsening due to the strengthening of the dollar and the corresponding depreciation of their own currencies, according to a review by the Global Food, Energy and Financial Crisis Response Team ( GCRG) UN. At the same time, UN experts believe that the risks of global stagflation, however, are not so high, since in a number of large economies, including the United States, unemployment is declining, and the slowdown in economic growth does not yet look menacing.

UN analysts record that, despite the recent decline, commodity prices in the world remain high (the cost of oil is now 33% higher than in January 2022) and may rise in the future. The price cuts went unnoticed by most consumers, the UN said, as inflation continued to accelerate. They believe that high energy prices could force many developing countries out of this market, which will seriously affect vulnerable segments of the population.

It should be noted that earlier the International Monetary Fund noted that high demand for liquefied gas in Europe against the backdrop of supply difficulties could push large developing countries to abandon it in favor of coal, which is more harmful from an environmental point of view (see “Kommersant” dated August 2 ).

In order to partially resolve the energy crisis in the short term, the UN GCRG proposes to introduce concessional state financing to replace fossil fuel boilers used for heating with heat pumps that are three to four times more efficient (in 2021, heating accounted for 50% of global final energy consumption ). Developed countries, according to the UN, should mitigate the consequences of the crisis without the widespread use of subsidies for fuel or electricity for the population.

Although the food situation has stabilized (according to the UN Food and Agriculture Organization, food prices fell by 8.6% in July, see Kommersant dated August 5), the GCRG notes that if we count from the beginning of 2020, then prices ended up growing by 50%. Against the background of the pandemic and lockdowns, the number of chronically malnourished people in the world increased by about 150 million to 828 million in 2020-2021. The UN notes that if the shortage of fertilizers persists, the food crisis may worsen.

Against this background, the financial situation in developing countries is deteriorating due to the strengthening of the dollar, experts say. So, since the beginning of 2022, the currencies of such countries have depreciated against the dollar by 5.1%, in June – by 2.1%. Over the same period, emerging market sovereign bond yields rose 162 basis points, up 64 basis points in June. According to the UN, these factors exacerbate the debt crisis and increase the cost of imports. By June, the trade deficit of low-income countries was $2.5 billion higher than it would have been if commodity prices had remained at pre-Ukraine conflict levels. According to UN estimates, in 62 developing countries, food import costs have increased by a total of $ 24.6 billion since the beginning of the conflict. In mid-July, IMF analysts wrote that not only 60% of the poorest economies were now in a state of debt crisis (or at a close level). but also 30% of middle-income countries.

However, the UN GCRG believes that the risks of global stagflation in late 2022 or 2023 are low, as unemployment in a number of large economies is falling, and model data on GDP indicate that the slowdown in the global economy has not yet gained alarming pace. It should be noted that the unemployment rate in the US, despite the fall in GDP in the second quarter on an annualized basis by 0.9%, remains low, in July the figure fell to 3.5% (see Kommersant of August 9). In the euro area, the unemployment rate was 6.6% in June, down 0.3 percentage points from January.

Georgy Smirnov