Global Risk Increases in Q2 2022 Due to The Impact of Geopolitical Tensions

Published on 2nd August 2022

The risk of stagflation* has magnified globally in 2022, with economic recovery prospects being halted amid record-high inflation levels, higher borrowing costs, and greater uncertainty as a result of the Russia-Ukraine crisis, says GlobalData. The leading data and analytics company’s Macroeconomic Database found that high food and fuel prices have triggered a food crisis in low-income nations.

GlobalData latest report, ‘Global Risk Report Quarterly Update – Q2 2022’ reveals that global risk increased from 43.5 out of 100 in Q1 2022 to 44 in Q2 2022.

Puja Tiwari, Economic Research Analyst at GlobalData, comments: “The elevated inflation level is unlikely to improve anytime soon, as GlobalData notes that the 2022 global inflation rate rose 2.7 percentage points, from 4.8% in January 2022 to 7.5% in July 2022. The real GDP growth rate projections for 2022, which GlobalData revises every month, have also been revised downward, from 4.4% in February 2022 to 3.1% in July 2022.”

Europe – Russia-Ukraine war threatens EU’s geopolitical order

Repercussions of war and the resulting sanctions levied on Russia continue to jolt EU financial markets, pushing energy prices to a record high. Europe’s economic outlook looks gloomy, with GlobalData revising its 2022 economic growth projections to 0.5% in July 2022 from an estimated 4.9% in January 2022. Many European nations are recording a multi-decade high inflation and slower economic growth due to uncertainty over future supplies from Russia. 

In GlobalData’s GCRI Q2 2022 update, Ukraine, Bosnia and Herzegovina, Moldova, Belarus, and Russia witnessed a deterioration in ranking, with an increase in risk score compared to the last update. Meanwhile, Switzerland, Denmark, Sweden, Norway, Finland, and Germany continue to remain in the list of top 15 nations with the least risk in Q2 2022.

Asia-Pacific – Political crisis, re-instatement of lockdowns, and depletion of foreign exchange reserves impacted regional recovery

The Asia-Pacific (APAC) region continues to face political and economic risks in the form of geopolitical tensions in the South China Sea, a spike in price levels, re-instatement of lockdowns in China, and consequent supply chain disruption.

India witnessed growth in merchandize exports, however, rising oil prices will increase fiscal burden. China continued to witness a slump in the property market, as well as high input costs, renewed lockdowns and flood—all of which will have a prolonged impact on the global supply chain. The depletion of foreign exchange reserves in Sri Lanka, the economic crisis in Bangladesh, and a high current account deficit in Pakistan have impacted the region’s recovery prospects.

According to the GCRI Q2 2022 report, Myanmar, Bangladesh, Turkmenistan, and Pakistan witnessed a sharp decline in their ranking compared to the previous update. Meanwhile, Singapore, New Zealand, and Hong Kong are the countries with the least amount of risk in Q2 2022

Americas – Strained relations with Russia, significant slowdown in economic growth, and rising inflation is impediment to recovery prospects

According to the GCRI Q2 2022 update, the Americas remained the second highest in terms of risk, with a regional risk score of 46.5 out of 100. Peaking inflation, a Fed rate hike, the US’s unfavorable relations with Russia and China, and political instability in Peru, Venezuela, Haiti, and Colombia are the key risk factors.

The report notes that the US and Canada remained in the list of the top 15 nations with the least risk. Meanwhile, Haiti, Venezuela, Nicaragua, Ecuador, Brazil, Argentina, and Peru witnessed a deterioration in their ranking compared to the previous update. 

Middle East and Africa – Russia-Ukraine war triggered food crisis across the region

The Middle East and Africa (MEA) is the highest risk region, according to the GCRI Q2 2022 update, with a regional risk score of 52.7 out of 100, which is up from 51.2 in the GCRI Q1 2022.

According to the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), the region imports 50% of wheat from Russia and Ukraine. Countries that were already facing a humanitarian crisis such as Egypt, Lebanon, Syria, Yemen, Jordan, and Palestine are now facing risks related to food insecurity—particularly in regions that have ongoing conflicts.

Mozambique, Yemen, and Syria were the countries with the highest risk in the MEA region in GCRI Q2 2022.

Tiwari concludes: “If inflation levels continue to rise, there is a downside risk of global growth becoming stagnated. Therefore, to avoid such a scenario, it is crucial that major structural reforms with appropriate monetary policies are implemented.” 

*Stagflation is slowing economic growth along with high inflation and unemployment    

Courtesy: GlobalData Media Centre

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