Russia’s invasion of Ukraine has pushed up prices for oil, gas and other commodities, affecting household purchasing power and weighing on companies and governments already struggling with heavy debt from the pandemic
Russia’s invasion of Ukraine has pushed up prices for oil, gas and other commodities, affecting household purchasing power and weighing on companies and governments already struggling with heavy debt from the pandemic
Disruptions in raw material supplies, financial strains and higher prices are among the effects of the war in Ukraine that will weigh on economies in Asia in the coming months, the World Bank says in a report released on Tuesday.
The report forecasts slower growth and rising poverty in Asia-Pacific this year as “multiple shocks” worsen problems for people and businesses.
Growth for the region is estimated at 5% versus the original forecast of 5.4%.
The “low-case” scenario calls for growth to slow to 4%, it said. The region saw a rebound to 7.2% growth in 2021 after many economies suffered a downturn with the outbreak of the pandemic.
The World Bank expects China, the region’s largest economy, to grow at 5% annually, much slower than 8.1% growth in 2021.
Russia’s invasion of Ukraine has helped push up prices for oil, gas and other commodities, hurt household purchasing power and weighed on companies and governments already struggling with unusually high levels of debt from the pandemic, says the report.
The Development Credit Institution called on governments to lift restrictions on trade and services to capture more trade opportunities and end fossil fuel subsidies to encourage the adoption of more green energy technologies.
“The impact of shocks means that people’s mounting economic pain will confront the shrinking financial strength of their governments,” said Aaditya Mattoo, World Bank chief economist for East Asia and the Pacific. “A combination of tax, financial and trade reforms could mitigate risk, revitalize growth and reduce poverty.” The report pointed to three main potential shocks to the region: the war, monetary policy changes in the US and some other countries and a slowdown in China.
While rising interest rates make sense to cool the US economy and curb inflation, much of Asia is lagging behind in the recovery from the pandemic. Countries like Malaysia could suffer currency outflows and other financial implications of this changing policy, it said.
Meanwhile, China’s already slowing economy could falter as outbreaks of COVID-19 lead to lockdowns like those now in place in Shanghai, the country’s largest megacity.
This is likely to affect many Asian countries whose trade depends on demand from China.
“These shocks are likely to compound existing post-COVID difficulties,” the report said.
The 8 million households whose members were thrown back into poverty during the pandemic “will see real incomes shrink even further as prices rise”. The report found that regional economies fared better during the 2021 delta-variant waves of coronavirus than in the early months of the 2020 pandemic, largely because fewer restrictions were imposed and widespread immunization helped mitigate the severity limit outbreaks.
On average, countries with a 1 percentage point higher vaccination rate would have higher growth, it said.
