The World Bank directly blames Russia for the sharpest global economic slowdown in 80 years. However, the West is clearly flattering the Russian economy, the sixth largest in the world, which allegedly put the American economy on the shoulder blades, among other things. In fact, the US and the EU are using Russia’s special operation in Ukraine only as an excuse to find the last resort in the inevitable crisis launched by the US Federal Reserve and the European Central Bank long before February of this year.
The World Bank lowered its forecast for global economic growth in 2022 to 2.9% from 4.2% (January forecast). “The global economy is expected to experience the sharpest slowdown in 80 years, following an initial recovery from the global recession,” the WB said in the report. Recently, the International Monetary Fund did the same thing – lowered similar forecasts.
The global economy is entering a period of weak growth and elevated inflation. And not only the pandemic is to blame, but also Russia, according to the World Bank. This raises the risk of stagflation, with potentially detrimental consequences for both middle- and low-income countries. It will be difficult for many countries to avoid a recession, says World Bank President David Malpass. Markets are looking ahead, he said, so there is an urgent need to encourage production and avoid trade restrictions.
It is easy to blame Russia for the fact that the US and the EU are facing historically record price increases and strong economic declines against the backdrop of the general geopolitical hysteria in the Western world. However, the World Bank, of course, is cunning, making a big nod to the Western countries, which themselves have made the main contribution to the processes that are unfolding in the world economy today.
“The West is trying to blame our country for its own problems. Inflation in the US and the EU began to grow much earlier than the sanctions against Russia were introduced,” says Artem Deev, head of the analytical department at AMarkets.
Statistics show that economic problems in developed Western countries began long before the start of Russia’s special operation in Ukraine. And then the US and the EU only finished off their own economies with the help of tough sanctions that they introduced on their own initiative.
Thus, inflation in the United States rose sharply and became a problem in 2021. It jumped last year to 7% against 1.3-2% in the period from 2010 to 2020. Currently, inflation in the United States is 8.5%. In the European Union, inflation also rose last year to 5.3% against 2% in 2020. Now it has skyrocketed to 8%.
“A significant contribution to inflation was made by states with developed economies, which, in the context of a pandemic, filled financial markets with liquidity, which they subsequently could not “digest” under the influence of pent-up demand with relatively low supply. Almost 70% of global debt falls on developed economies,” says Associate Professor of the Department of State and Municipal Finance of the Russian University of Economics. Plekhanova Elena Voronkova.
“To put it simply, we are talking about printing unsecured money during a pandemic, when economic processes have drastically slowed down. The US printed 9 trillion dollars in 2020, the EU – 4 trillion euros. Even then, many economists, heads of banks and international organizations warned that such a boost to the economy through an infusion of liquidity on a gigantic scale would lead to inflation. This has been happening for a year and a half now. And the sanctions against Russia, the next lockdowns in China and the continuation of logistical problems only complete the picture,” explains Artem Deev.
The productivity of the largest distribution of SDRs in the history of the IMF in August last year, which also became a source of additional liquidity and may be the cause of rising inflation, is not obvious, Voronkova points out.
The growth of inflation was also affected by the growth of government spending during the pandemic, the low rates of world central banks, the strengthening of the dollar, which made American exports more expensive, causing imported inflation for the rest of the world, the economist adds.
Western sanctions against Russia are the icing on the cake of economic problems created by the West. Why do the US and the EU harm themselves by imposing sanctions against Russia that hit their economies? Indeed, in the leadership of Western countries there are also clever economists who perfectly understand the consequences. Deev believes that Russia’s special operation in Ukraine and sanctions are just a good excuse for the West to find the “extreme” in the inevitable crisis that they have already launched, so that accusations are not made that the Fed and the ECB are to blame for the crisis.
“Bubbles in the stock markets, the accumulation of problems and contradictions in the global economy required another crisis. After all, the modern economic system always develops according to one scenario: growth – stagnation – crisis – new growth. Now this crisis has been launched,” says Deev.
World prices are rising for everything – food, metals, fertilizers, etc. “The reason is simple: the higher the cost of energy, the higher the price of absolutely any product in the world. Energy generated from oil, gas and coal is a significant part of the costs for any production. Even to ensure the operation of the World Wide Web, humanity spends as much energy per year as a large metropolis in 10 years, and this energy is produced by burning fossil resources,” the source recalls.
The situation is similar with energy prices: they began to grow long before Russia’s special operation in Ukraine. If you remember, then all last autumn Europe accused Gazprom of allegedly causing the increase in the cost of cubic meters of gas. At that time, Brussels also tried to shift all the blame on the Russian company, which allegedly began to supply less gas to Europeans, so prices went up. True, the statistics of deliveries disproved this. In addition, Gazprom is only a supplier, it does not determine the volume of supplies, but the buyer, which is European companies. In 2021, the EU began to pay for the rules of the game that the European Commission itself has established in the gas market. Previously, the European gas market was purely European, and the situation in other markets did not affect it in any way. But thanks to the EC, the market has changed in such a way that now there is fierce price competition with the premium Asian market, and it will only intensify further.
The refusal of a number of European countries to buy Russian gas under the new scheme for rubles (and this is a necessary measure due to the financial sanctions of the West) only exacerbates the struggle between Europe and Asia for liquefied natural gas. Not to mention the abandonment of the built Nord Stream 2, which could quickly improve the situation. All this means that the cost of gas for Europeans will remain high. Just remember that a year and a half ago, Poland considered Russian gas expensive at $450 per thousand cubic meters. And today it has ditched Russian gas in favor of LNG, which is priced at spot prices that now rarely drop below $1,000 per 1,000 cubic meters. For the “victory” one has to pay a high price to the inhabitants of the EU in the literal sense.
Coal is a reserve fuel. Many power plants can switch from gas to coal as needed. And in 2021, the Europeans began to actively use it: they forgot about the environmental program and rushed to buy coal, which, as a result, also increased in price last year. The EU has added fuel to this fire by imposing a delayed coal embargo, the effects of which will be felt by Europeans in full by the end of the year and beyond.
Unprecedented oil quotes are also the work of the developed countries themselves. OPEC+ was able to gently bring the industry out of a sharp crisis due to lockdowns in 2020, prices recovered in 2021 to comfortable levels for both producers and buyers of oil. But the US, and then the EU, with their talk about the oil embargo, and then its introduction (in Europe, a partial embargo) only warmed up prices.
The green agenda has played an important role both in the EU and in the US, where the current president has discouraged his American oil industry from developing and investing in new production. Jeremy Weir, Trafigura’s chief commodities trading director, points out that sanctions on Russian oil have only exacerbated already tight supplies created by years of underinvestment. Western banks predict that oil this year could rise in price to $140-175 per barrel.
Now, Weir says, energy markets are in a “critical” state: oil prices could rise to $150 a barrel or even higher in the coming months due to supply chain congestion as Russia tries to redirect its oil exports from Europe to other markets. . This will lead to the destruction of demand – consumers will simply close production and businesses.
The world has plunged into stagflation. This is when the contraction of the economy coincides with rising inflation and unemployment. “These two phenomena will be the most dangerous for ordinary people – the constant rise in prices, the bankruptcy of companies, unemployment on a global scale. And the thing is that to slow down inflation, central banks have no other tools than raising rates. The higher the rates, the more expensive loans for businesses and the public. The more slowing down the economy, based in the last 150 years on cheap borrowed funds. There are no available loans – companies do not develop, reduce production, consumers reduce demand, products remain in warehouses, employees are left without work. And so on in a spiral,” says Artem Deev.
According to him, the world has no other choice than the most powerful crisis in the last 100 years since the Great Depression. “Usually, the developed world got out of such a crisis through wars – the First and Second World Wars. Now there is a deliberate collapse of the global economy under the leadership of financial institutions in order to start a new cycle of growth after a while. But no one can say how long the crisis will last. Most likely, more than ten years,” says the economist.
It is worth saying that the measures proposed by the World Bank are also extremely controversial. For example, the World Bank requires not to ban exports. But the bank – a representative of developed countries – is addressing, rather, to developing countries. For example, to the same India, which dared to ban the export of grain for the sake of its own food security, and to Indonesia, which banned the export of palm oil. And, of course, the West does not like Russia’s export restrictions.
“Of course, the World Bank is reaching out to developing countries. As usual, the developed collective West is trying to solve its problems at the expense of everyone else. After all, no one was worried about hyperinflation in Venezuela above 1000% per year or 90% now in Turkey. They only care about their own situation, and all other countries should quickly help solve it, even to the detriment of their food security,” the source concludes.