Cover: The personalities who have shaped the year so far
President of Russia
The Russian president’s decision to invade Ukraine on February 24 has caused the biggest refugee crisis in Europe since World War II and has disrupted the latter’s agricultural production, causing food shortages around the world. The conflict has worsened the outlook for already inflated global food prices just as the global economy was recovering from Covid-19.
The UN has warned that the Russian-Ukrainian war could soon cause a global food crisis that could last for years. According to the World Bank, Russia and Ukraine account for around 40% of wheat imports in the region and around 75% or more in Central Asia and the South Caucasus.
The halt in Ukrainian exports after the start of the conflict pushed the United Nations Food and Agriculture Organization’s food price index, which tracks the international prices of the world’s most traded food products, at its highest level in March (159.7 points) since records began in 1990.
As post-pandemic global demand, extreme weather, tight food supplies, high energy prices, supply chain bottlenecks and export restrictions have weighed in the food market over the past two years, the convergence of these factors following Russia’s invasion of Ukraine is unprecedented. The war added to growing worries of a sharp global slowdown, soaring inflation and debt, and soaring poverty levels.
Since the start of the war, major foreign investors such as British energy giant BP and McDonald’s Corp have left Russia, while several Russian banks have been suspended from the international payment system Swift (Society for Worldwide Interbank Financial Telecommunications ). These measures should lead to a deep recession of the Russian economy.
But Vladimir Putin is unfazed, saying: “Sometimes when you look at those leaving – thank God, maybe? We will occupy their niches: our business, our production — it has already grown, and it will rest securely on the ground prepared by our partners.
But the sanctions have also hurt Europe, which depends on Russia for a third of its gas, and forced some countries to backtrack on plans to transition to clean energy.
Emerging markets and developing countries in Europe and Central Asia are expected to bear the brunt of war and sanctions against Russia, according to the World Bank’s April 10 economic update.
The war reshaped or strengthened global political alliances (with NATO set to admit Sweden and Finland into the intergovernmental military alliance, and Ukraine and Moldova set to gain candidate status to the EU), while its economic impact affects capital markets, trade and migration links.
Did Putin paint himself into a corner? What will he do next?
President of the United States
All eyes are on the US president, presiding over an increasingly divided America, while his stance on China signals growing cracks in diplomatic and trade relations between the world’s two largest economies.
On November 8, the United States will hold its midterm elections — polls halfway through a president’s four-year term — for Americans to elect members of Congress and representatives at the national and national levels. local. The midterm elections will be key in determining whether Joe Biden will lose or retain control of Congress.
Critical national issues facing the Biden administration include searing inflation, gun control and abortion laws. As inflation hit a 40-year high of 8.6%, a recent poll showed voters leaning toward Republicans in Congress to better manage the economy.
Biden has escalated the US-China trade war that his predecessor started in 2018. A phase one trade deal between the two nations was signed in January 2020, but relations have not improved, with Biden announcing on June 18 that he was considering possible action on U.S. tariffs on Chinese goods.
Beijing has frequently criticized the Biden administration for maintaining the Trump administration’s tariffs, saying they have hurt the interests of American consumers and businesses the most. The trade war between the United States and China has upended a decades-long effort to lower global trade barriers and reduced trade flows between the two countries.
Biden’s ban on imports from China’s Xinjiang region since last December over concerns about forced labor has added fuel to the fire. Imports are prohibited unless proven otherwise. China denies abuses in Xinjiang, a major cotton producer that also supplies much of the world’s materials for solar panels.
Biden also raised questions about longstanding US policy on Taiwan, when he said his administration would be willing to use military force to defend the island nation. Although the White House later clarified that there had been no change in policy, the president’s remarks sparked further tension between the United States and the Chinese government, which considers Taiwan to be part of its territory and cannot exist as a sovereign nation.
The United States also faces tensions with Russia, as trade relations between the two countries were suspended following the latter’s attack on Ukraine. While the United States has provided about $12.9 billion in security aid to Ukraine, Biden dismissed the idea that Russia’s war in Ukraine could turn into a broader proxy conflict. between Moscow and Washington and its NATO allies.
President of China
Chinese President Xi Jinping’s zero Covid policy, which has forced routine nationwide shutdowns for months, has caused deep economic distress in the country by disrupting manufacturing, supply chains and consumer spending. Many companies have been forced to close their factories, which has global consequences since most of the manufacturing centers of international brands are located in China. The strict lockdowns, which world leaders have called unreasonable, have prompted companies to reconsider their reliance on China given the risks.
In its June China Economic Update, the World Bank projects that China’s real GDP growth will slow sharply to 4.3% in 2022, 0.8 percentage points lower than forecast in December.
The damage caused by China’s zero Covid policy has extended beyond the nation itself. Zero-Covid is now consistently identified as one of the factors fueling global inflation as slowing growth in the world’s second-largest economy cripples growth in countries dependent on China.
US Treasury Secretary Janet Yellen said Covid-19 lockdowns in China appear to be hampering the movement of goods and hampering the global supply chain. She warned that China’s slowing economy could affect other countries. The World Health Organization (WHO) has repeatedly described zero-Covid as “unsustainable”.
Although China last Tuesday reduced its quarantine period for travelers from half to one week, Xi repeatedly stressed that the country should stick to its “dynamic zero-Covid” policy and warned that economic consequences would follow if this were not the case, according to state media.
“Our country has a large population. Strategies such as “herd immunity” and “flat diaper” [Chinese slang for doing the bare minimum] would lead to unimaginable consequences,” he said.
Observers say Xi’s overarching goal appears to be securing a smooth path to the 20th Party Congress in the second half of 2022, when he will secure a third five-year term. To renounce zero-Covid would be to admit the failure of its leadership.
Chairman of the US Federal Reserve
Chairman of the US Federal Reserve during a period of high inflation – caused by fiscal and monetary policies to counter the economic impact of Covid-19, supply shocks and pent-up demand – Jerome Powell is in an unenviable position then that it balance measures to bring prices down while ensuring a soft landing for the US economy.
It should be noted that Powell has served under four presidents and is the first non-economist to lead the Fed in 40 years. He was elevated to the post of Fed Chairman by Donald Trump and reappointed by Joe Biden for a second term last November.
In an effort to calm prices as inflation hit a four-decade high of 8.6% in May, the Fed on June 15 raised interest rates by 75 basis points (bps), the largest jump since 1994, and announced more rate hikes to come.
Powell told lawmakers the following week that the central bank was determined to reduce inflation and had the “tools” to do so, while noting that an economic slowdown was possible given the war in Ukraine and ongoing problems. of the supply chain. “It’s definitely a possibility. It’s not our intended outcome at all, but it’s definitely a possibility,” he said.
At the congressional hearing, Powell faced angry lawmakers who fear continued rate hikes could “tip this economy into recession” without stopping inflation.
The Fed is seen as playing a frantic game of catch-up by rapidly raising rates and precipitating a market correction. Powell is facing criticism that the Fed has been too slow to react given its stance that last year’s rise in inflation was ‘transitory’ as some say a withdrawal of policy support monetary policy should have been undertaken after September.
Powell’s predicament has been compared to that of former Fed Chairman Paul Volcker, who boldly raised interest rates to 20% in June 1981, sending the economy into a double-dip recession. . However, the hikes succeeded in bringing down the inflation of the 1970s and were followed by about two decades of moderate economic growth and inflation and low unemployment. Critics, however, have pointed out that the impact has been particularly brutal on small towns in the industrial heartland of the United States, which “never recovered”.
The Fed’s move raises borrowing costs not just for Americans, but for others around the world, as other central banks are forced to do the same. Higher interest rates will also strengthen the US dollar, making it more expensive for countries that have borrowed heavily in US currency to service and repay their debts.
After the sharp rise in June, all eyes are on a further rise of 75 basis points in July and 50 basis points in September. Longer term, will Powell stay the course on monetary tightening and steer the U.S. economy toward a soft landing?