The Russian invasion of Ukraine, with the war already in its fourth month, dominated the work of the World Economic Forum in Davos, Switzerland, which for the first time this year was due to the coronavirus in May and not January. In the context of the speeches and discussions, there were statements about the impact of the war on the world economy and the functioning of its institutions, such as international trade.
The leadership of the International Monetary Fund & # 8211; General Manager Kristalina Georgieva and First Deputy Gita Gopinat & # 8211; warned that the suffering caused by the war & # 8211; such as rising energy and food prices, declining growth and tighter financial conditions & # 8211; will be more difficult to deal with in an environment where barriers to international trade are increasing.
According to the IMF, some 30 countries have imposed restrictions on trade in energy products, food and other raw materials since the war. Many countries have announced a ban on food exports in a bid to ensure that their domestic needs are met at a time when the confinement of Ukrainian grain on ships has triggered a food crisis and sharp rise in prices. If this trend continues, the IMF considers the consequences to be painful for all countries. Instead, he emphasized the need to reduce trade barriers to reduce product shortages and prices.
According to other prominent economists, such as Kenneth Rogoff, the reversal of globalization will lead to higher global inflation in the future than in the previous two decades, when China's accession to the World Trade Organization led to a flood of international markets. of. OECD data show that world trade in goods rose to a new high in the first quarter of 2022, with G20 exports and imports up 3.6% and 5.8%, respectively, from last quarter of 2021. However, this increase is mainly due to price increases and not to trade volume.
Many central bankers also passed through Davos, such as the President of the European Central Bank, Christine Lagarde, the head of the Bank of France, Villeroa de Gallo, the Dutch central banker, Klaus Knott, and others. The message is that the eurozone economy is not in danger of recession, at least in the current context, and that the ECB will continue to raise interest rates, which are still in negative territory, starting in July. Lagarde “photographed”, in a post she made last Monday on the ECB blog, an increase in interest rates in July and another in September, so that the deposit acceptance rate, which is currently -0.5%, becomes zero or slightly positive. After September, the increase in interest rates, according to Lagarde, may continue gradually to reach their “neutral” level, a theoretical index that is estimated to be between 1% and 2%.
< p class = "text-paragraph"> The current consensus at the ECB is that the increase in July, the first in more than 10 years, will be around 25 basis points (a quarter of a percentage point). However, the amount of the increase will also depend on the data on inflation in May and June, as if there is a further increase from 7.4% in April, it may lead to thoughts of raising the key interest rate by 50 The fear of a recession in the world economy is, however, always present in the markets, given the great uncertainty caused by the war in Ukraine. Major US banks believe that the US economy is likely to enter a recession due to rising interest rates, which is expected to be higher than & # 8217; everything in the Eurozone.