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Russia’s invasion of Ukraine is contributing to some of the highest prices ever for commodities like oil, wheat and fertilizer, plaguing a global economy already experiencing decades-high inflation.
Energy inflation in the European Union accelerated to a record last month, which looks likely to worsen as natural gas and oil prices surged this week. In the U.S., higher fuel costs could delay the peak for inflation, according to forecasts by Bloomberg Economics.
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Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
World
Russia’s invasion of Ukraine carries huge risks for a world economy that’s yet to fully recover from the pandemic. Covid-19 has left the global economy with two key points of vulnerability — high inflation and jittery financial markets. Aftershocks from the conflict could easily worsen both.
Food inflation is already plaguing global consumers, but now the price gains could get even sharper as Russia’s attack on Ukraine threatens key shipments of some of the world’s staple crops. Ukraine and Russia together account for more than a quarter of the global trade in wheat, as well as a fifth of corn sales.
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Europe is bracing for what could be an exodus of more than a million refugees after Russia launched a full-scale attack on Ukraine, as officials say any initial strain will be borne by member states on the European Union’s eastern frontier.
U.S.
In the U.S., more expensive gasoline and moderate financial tightening would drag on growth. The country may ship more of its natural gas to Europe, raising prices at home. Consumer inflation may exceed 8% in February and end the year close to 5%, compared with the 3.3% consensus.
A month before the breakout of war in Ukraine, U.S. inflation-adjusted consumer spending advanced by more than expected. The advance underscores the resilience of American demand despite prices rising by triple the Federal Reserve’s target. The personal consumption expenditures price index, which the Fed uses for its inflation target, increased 6.1% from a year earlier, the most since 1982.
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Europe
Energy inflation in the European Union accelerated to a record last month — with Belgium and the Netherlands taking the biggest blow — amid the worst supply crunch in decades.
French inflation accelerated more than expected, complicating the European Central Bank’s efforts to smoothly withdraw crisis-era stimulus amid economic disruption from Russia’s attack on Ukraine. Consumer prices in the euro area’s second largest economy rose 4.1% in February, the strongest reading in data back to 1997.
Asia
Russia’s invasion of Ukraine poses a difficult question for China: How can it support a key strategic partner when relations with the U.S. and Europe are so much more important for its economy? An important energy supplier to China, Russia has strengthened trade ties with Beijing over the past decade. However, Russia’s economic weight pales in comparison to Western nations, who are much bigger export customers for China.
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South Korea is preparing to take immediate action if Russia’s invasion of Ukraine results in a disruption to energy shipments. About 17% of South Korea’s coal imports came from Russia last year, while it got 6% of its oil and 5.3% of its gas from the country, according to Korea Customs Service data.
Emerging Markets
Countries everywhere will feel the impact of commodity-price spikes, which include food staples like wheat as well as energy. Some, like Saudi Arabia and other Gulf oil exporters, might benefit. But for most emerging markets — already suffering slower recoveries — the combination of higher prices and capital outflows could deliver a major blow.
Oil’s surge has pushed crude above the break-even level for almost all the Middle East’s producers, raising the prospect of significant budget surpluses for even the weakest economies if prices remain high.
Climate change is on track to cost the global economy $38 trillion a year in damages within the next 25 years, researchers warned on Wednesday, a baseline that underscores the mounting economic costs of climate change and continued inaction as nations bicker over who will pick up the tab.
Key Facts
Damages from climate change will set the global economy back an estimated $38 trillion a year by 2049, with a likely range of between $19 trillion and $59 trillion, warned a trio of researchers from Potsdam and Berlin in Germany in a peer reviewed study published in the journal Nature.
To obtain the figure, researchers analyzed data on how climate change impacted the economy in more than 1,600 regions around the world over the past 40 years, using this to build a model to project future damages compared to a baseline world economy where there are no damages from human-driven climate change.
The model primarily considers the climate damages stemming from changes in temperature and rainfall, the researchers said, with first author Maximilian Kotz, a researcher at the Potsdam Institute for Climate Impact Research, noting these can impact numerous areas relevant to economic growth like “agricultural yields, labor productivity or infrastructure.”
Importantly, as the model only factored in data from previous emissions, these costs can be considered something of a floor and the researchers noted the world economy is already “committed to an income reduction of 19% within the next 26 years,” regardless of what society now does to address the climate crisis.
Global costs are likely to rise even further once other costly extremes like weather disasters, storms and wildfires that are exacerbated by climate change are considered, Kotz said.
The researchers said their findings underscore the need for swift and drastic action to mitigate climate change and avoid even higher costs in the future, stressing that a failure to adapt could lead to average global economic losses as high as 60% by 2100.
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How Do The Costs Of Inaction Compare To Taking Action?
Cost is a major sticking point when it comes to concrete action on climate change and money has become a key lever in making climate a “culture war” issue. The costs and logistics involved in transitioning towards a greener, more sustainable economy and moving to net zero are immense and there are significant vested interests such as the fossil fuel industry, which is keen to retain as much of the profitable status quo for as long as possible. The researchers acknowledged the sizable costs of adapting to climate change but said inaction comes with a cost as well. The damages estimated already dwarf the costs associated with the money needed to keep climate change in line with the limits set out in the 2015 Paris Climate Agreement, the researchers said, referencing the globally agreed upon goalpost set to minimize damage and slash emissions. The $38 trillion estimate for damages is already six times the $6 trillion thought needed to meet that threshold, the researchers said.
Crucial Quote
“We find damages almost everywhere, but countries in the tropics will suffer the most because they are already warmer,” said study author Anders Levermann. The researcher, also of the Potsdam Institute, explained there is a “considerable inequity of climate impacts” around the world and that “further temperature increases will therefore be most harmful” in tropical countries. “The countries least responsible for climate change” are expected to suffer greater losses, Levermann added, and they are “also the ones with the least resources to adapt to its impacts.”
What To Watch For
The fundamental inequality over who is impacted most by climate change and who has benefited most from the polluting practices responsible for the climate crisis—who also have more resources to mitigate future damages—has become one of the most difficult political sticking points when it comes to negotiating global action to reduce emissions. Less affluent countries bearing the brunt of climate change argue wealthy nations like the U.S. and Western Europe have already reaped the benefits from fossil fuels and should pay more to cover the losses and damages poorer countries face, as well as to help them with the costs of adapting to greener sources of energy. Other countries, notably big polluters India and China, stymie negotiations by arguing they should have longer to wean themselves off of fossil fuels as their emissions actually pale in comparison to those of more developed countries when considered in historical context and on a per capita basis. Climate financing is expected to be key to upcoming negotiations at the United Nations’s next climate summit in November. The COP29 summit will be held in Baku, the capital city of oil-rich Azerbaijan.
Growth in gross domestic product (GDP), the total value of all goods and services produced in the economy annually, is one of the most frequently cited indicators of economic performance. To assess Canadian living standards and the current health of the economy, journalists, politicians and analysts often compare Canada’s GDP growth to growth in other countries or in Canada’s past. But GDP is misleading as a measure of living standards when population growth rates vary greatly across countries or over time.
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Federal Finance Minister Chrystia Freeland recently boasted that Canada had experienced the “strongest economic growth in the G7” in 2022. In this she echoes then-prime minister Stephen Harper, who said in 2015 that Canada’s GDP growth was “head and shoulders above all our G7 partners over the long term.”
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Unfortunately, such statements do more to obscure public understanding of Canada’s economic performance than enlighten it. Lately, our aggregate GDP growth has been driven primarily by population and labour force growth, not productivity improvements. It is not mainly the result of Canadians becoming better at producing goods and services and thus generating more real income for their families. Instead, it is a result of there simply being more people working. That increases the total amount of goods and services produced but doesn’t translate into increased living standards.
Let’s look at the numbers. From 2000 to 2023 Canada’s annual average growth in real (i.e., inflation-adjusted) GDP growth was the second highest in the G7 at 1.8 per cent, just behind the United States at 1.9 per cent. That sounds good — until you adjust for population. Then a completely different story emerges.
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Over the same period, the growth rate of Canada’s real per person GDP (0.7 per cent) was meaningfully worse than the G7 average (1.0 per cent). The gap with the U.S. (1.2 per cent) was even larger. Only Italy performed worse than Canada.
Why the inversion of results from good to bad? Because Canada has had by far the fastest population growth rate in the G7, an average of 1.1 per cent per year — more than twice the 0.5 per cent experienced in the G7 as a whole. In aggregate, Canada’s population increased by 29.8 per cent during this period, compared to just 11.5 per cent in the entire G7.
Starting in 2016, sharply higher rates of immigration have led to a pronounced increase in Canada’s population growth. This increase has obscured historically weak economic growth per person over the same period. From 2015 to 2023, under the Trudeau government, real per person economic growth averaged just 0.3 per cent. That compares with 0.8 per cent annually under Brian Mulroney, 2.4 per cent under Jean Chrétien and 2.0 per cent under Paul Martin.
Canada is neither leading the G7 nor doing well in historical terms when it comes to economic growth measures that make simple adjustments for our rapidly growing population. In reality, we’ve become a growth laggard and our living standards have largely stagnated for the better part of a decade.
Ben Eisen, Milagros Palacios and Lawrence Schembri are analysts at the Fraser Institute.
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