UN Warns of Looming Economic Slowdown, Stagflation

Dike Onwuamaeze

Barely one month after the Manufacturers Association of Nigeria (MAN) lamented that the escalating price of diesel is crippling the production capacity of its members, a United Nations’ (UN) report has given an indication that the Nigerian economy might be assailed with more energy turbulence.

The UN’s report, which was released on Wednesday, August 3, warned that rising fossil energy costs might be priced beyond the reach of many developing countries, adding that the global economy would be faced with growing fears of a looming economic slowdown that might lead to a return to stagflation at the end of 2022 or in 2023. 

The report, which was captioned “Global Impact of War in Ukraine: Energy crisis – UN Global Response Group on Food, Energy and Finance, August 2022,” also stated that the, “world is in the grip of a major energy crisis with countries worldwide affected by extremely high and volatile prices, particularly of fossil fuels as rising energy prices may price out many developing countries, with a high level of impact on the most vulnerable citizens, from energy markets.”

It said the global cost-of-living crisis had been threatening to push more people into food insecurity and extreme poverty by the end of 2022 as prices of goods and services kept rising across the world and affecting the most vulnerable people due to the ripple effects of the war in Ukraine in all its dimensions.

The report, which was written by the United Nations Conference on Trade and Development (UNCTD), stated that, “there are growing fears of a looming economic slowdown that, coupled with high inflation, might imply a return to stagflation at the end of 2022 or in 2023.

“Consumer price indices keep climbing, consumer sentiment is deteriorating and leading industrial indicators in many countries suggest a slowdown in production.

“However, the signals are not altogether clear: unemployment is still falling in some major markets; and UNCTAD model data on gross domestic product show signals of a slowdown but this has yet to gather pace.

“Stagflation would ultimately accelerate the cost of-living crisis by reducing household income, straining countries’ fiscal spaces and increasing financial market pressures.”

The report stated that debt repayment and financial conditions in developing countries would be worsened despite the fall in commodity prices due to a strengthening United States dollar.

It said: “Since the beginning of 2022, the currencies of developing economies have depreciated by 5.1 per cent against the dollar; with a depreciation of 2.1 per cent in June. In the same period, the yield of sovereign bonds from these economies increased by 162 basis points; with an increase of 64 basis points in June.

“As a result, developing country debts and import bills are coming under further pressure. By June 2022, the trade deficit of low income countries was about 2.5 billion higher than it might have been if the prices of key commodities had stayed at pre-war levels.

“In addition, in the 62 most vulnerable countries, food import bills have increased by $24.6 billion since the start of the war.”   

 The UN further warned that in the short term, developing economies would struggle to obtain the energy supply they need while vulnerable populations would inevitably be pushed further back with regard to access to energy and clean cooking solutions, thereby losing hard won gains in achieving Sustainable Development Goal 7.

It said: “A potential ‘scramble for fuel,’ in which only those countries paying the highest price can gain access, would be devastating for a multilateral system based on trust and proportionality. Sky-high prices and growing social discontent are putting many governments under pressure.”

The report advised that in this context the best policies for governments would be those that mixed urgency and strategy. “Without such policies,” said the report, “there is a risk that some countries, especially those without adequate funding, might, under pressure, set a course for high-emission, expensive energy in future.”

The report also recommended that world governments should double down on the use of renewable energy sources to achieve the net zero goal, tackle energy poverty and boost and diversify the global energy mix.

It said: “Governments must identify and address bottlenecks in renewable energy supply to foster clean energy and economic growth and leverage opportunities for a just transition,” adding that “renewable energy scale-up depends on a stable policy environment, providing long-term revenue certainty and the transparent granting of permits.”

It further recommended that “governments must combat energy waste by prioritising reducing natural gas flaring and methane leaks along the energy supply chain.”