The massive setback of global economy

The Russia-Ukraine war could not have come at a worse time for the global economy. Even as prices rise, the war along with its economic and political ramifications looks set to impede or even derail economic recoveries as countries emerge from Covid-19-induced downturns. 

The Russia-Ukraine war could not have come at a worse time for the global economy. Now, economists and policymakers are warning about the return of stagflation, which the world has not seen since the 1970s.

The Financial Times’ front page warns that “the twin perils of slowing growth and high inflation, or stagflation, will hit the global economy this year as Russia’s war against Ukraine exacerbates a slowdown in the recovery from the coronavirus pandemic.”

Inflationary pressures have been building up as economies around the world try to recover from Covid-19, with demand for goods and services returning even as the world’s supply chains have yet to fully recover from pandemic-related disruptions.

The war between Russia and Ukraine could not have come at a worse time. Energy prices in particular have risen sharply over the past year and the conflict has pushed prices up even higher.

The spike comes as some Western countries such as the US and Canada have decided to halt imports from Russia, the world’s third-largest oil exporter, in response to its military actions. This means they have to buy their oil from other producers, leading to higher prices.

Even as prices rise, the Russia-Ukraine war along with its economic and political ramifications looks set to impede or even derail economic recoveries as countries emerge from downturns brought about by Covd-19.

All these are setting the stage for a perfect storm threatening to blow the world economy off course, according to economists and policymakers.

They are even talking about the return of stagflation, which the world has not seen since the 1970s’ oil shock. Combining economic stagnation and inflation, it is a situation where an economy faces the twin challenges of slow economic growth and joblessness amid rising inflation.

For the man in the street, they don't need an economist to tell them that their standard of living has been significantly affected in the last few months," said economist Walter Theseira, an associate professor at the Singapore University of Social Sciences (SUSS).

What matters to them has gone up in price, their utility bills, their food, their petrol, and if their wages don't respond soon, their real standard of living will be at risk of declining this year.