The Ukraine price shock will be felt globally and hit the income of the poorest

In early 2022 the Emerging and Developing Economies (EMDEs) continued a fragile recovery from the pandemic, while many were balancing with increasing inflation and tightening global financial conditions. Overall, the pandemic shock has left EMDEs on a lower growth path and increased the income gap to the advanced economies. Moreover, with record-high debt levels and inflation pressures rising, many countries have limited policy space to respond to the ongoing shock emanating from the war in Ukraine.

“The Ukraine crisis is a devastating humanitarian catastrophe. Its economic ramifications will be felt across the globe through slowing growth and higher inflation following rising energy and food prices. While the magnitude and duration of the impact remain highly uncertain, especially the surging food prices will hit hardest the real incomes of the poorest people in developing economies. Moreover, the crisis is likely to amplify already strained global supply chains. Other channels of effect will come through tightening financial conditions, which are already affecting the availability of capital in more risky markets,” comments Kristiina Karjanlahti, Finnfund’s new Lead Economist specialised in developing economies.

Countries with direct trade links with Russia and Ukraine and high food and energy import dependency are particularly vulnerable. For example, Egypt, the world’s largest wheat importer relying on imports from Russia and Ukraine, is experiencing turmoil, with capital outflows and exchange rate depreciation. On the other hand, the price effects will be felt globally and especially some low-income countries are at risk of declining food security and increasing risks of hunger.

“Finnfund’s commitment to continue investing in fragile markets will support the recovery in an increasingly uncertain environment. The food price shock has highlighted the importance of food security and increasing the productivity in the agriculture sector, especially in Africa, which is also a key priority in Finnfund’s new strategy,” says Karjanlahti.

For more information:

Lead Economist Kristiina Karjanlahti, kristiina.karjanlahti@finnfund.fi, tel. +358 50 525 7081
Communications Director Unna Lehtipuu, unna.lehtipuu@finnfund.fi, tel +358 40 624 0896

Finnfund is a Finnish development financier and impact investor. We build a sustainable future and generate lasting impact by investing in businesses that solve global development challenges. We invest 200–250 million euros in 20–30 companies in developing countries each year. Our focus sectors include renewable energy, sustainable forestry, sustainable agriculture, financial institutions, and digital infrastructure and solutions. Today Finnfund’s investments and commitments total about 1.070 billion euros, half of them in Africa. The company has 90 employees.