Food, energy prices could push the globe into recession

Gas prices soared higher in the US while demand for gasoline drops before the beginning of the summer driving season. US President Joe Biden warned that Americans will likely feel “Putin’s price hike” at the gas pump in the foreseeable future.

Russia’s invasion of Ukraine caused commodity prices to rise to such an extent that a global recession may now be inevitable, according to David Malpass, the World Bank’s president.

Prices of wheat, beef, sunflower oil surged amid predictions of a prolonged period of food inflation. Meanwhile, the Green Markets North America fertilizer price index, which tracks the costs of urea, potash, and diammonium phosphate, has risen 14% since Russia’s assault on Ukraine began.

Malpass also noted that developing countries were most likely to be plunged into recession by soaring food, energy, and fertilizer prices. “It’s a very difficult, challenging outlook for advanced economies, but even worse for developing countries,” he added.

Commodity price rises could lead to a recession because they help drive up inflation, which has hit 8.3% in the US and is running at similar 40-year highs in the UK. Central banks will hike interest rates to control inflation, which hits economic growth.

“As we look at the global GDP … it’s hard right now to see how we avoid a recession,” Malpass said in a speech before the US Chamber of Commerce, earlier this week.

“The idea of energy prices doubling is enough to trigger a recession by itself.” Malpass pointed to the negative impact from soaring food, energy, and fertilizer prices, in particular. Crude oil prices have risen 20% to $111 a barrel since Russia attacked Ukraine in late February.

The World Bank cut its 2022 global growth forecast from 4.1% to 3.2% in April, citing the impact of Russia’s invasion on gross domestic product.

“Countries are under severe financial stress,” Malpass said at the time. “Sixty percent of low-income countries are already in debt distress or at high risk of it.”