Finance ministers for the Group of Seven leading economies grappled on Thursday with deepening inflation concerns and the immediate effects of Russia's war in Ukraine, with US Treasury Secretary Janet Yellen warning that it all adds up to a “very difficult economic situation.”
Yellen warned that ongoing sanctions against Russia could generate some blowback for the US and its allies, causing higher inflation worldwide.
The risk of high inflation is that it could lead to slower growth and a broader downturn — a sign that the events kickstarted by Russian President Vladimir Putin's invasion of Ukraine could have repercussions far beyond the front lines of the fighting.
Yellen took note of “not only supply shocks that we've had, but with the war continuing and with sanctions continuing to be applied, we may face more inflationary risks to the global economy."
Beyond high inflation, the finance ministers meeting in Koenigswinter, Germany, are confronting a refugee crisis, food insecurity exacerbated by the war, climate change and the ramifications of a multiyear pandemic.
German Finance Minister Christian Lindner, the meeting's host, told reporters ahead of the meeting that Ukraine will likely need “a number of double-digit billion euros” over the coming months.
Later in the day, Lindner said the finance ministers and central bank chiefs heard a virtual address by Ukraine's prime minister and were in discussions with the country's finance minister, who was participating by video link.
“We are currently collecting the various pledges for direct liquidity help,” Lindner told reporters.
He said Germany pledged 1 billion euros in grants and expects “further progress” during the meeting.
The officials were also discussing other topics, such as soaring consumer prices.
Yellen said that nations were “losing some factors" that played a deflationary role, adding, “We might be moving into a world where goods prices generally fall less quickly than they have historically.”
Linder, for his part, said: “Clear decisions are necessary in order not to let inflation become a long-term detrimental phenomenon, and so that we succeed in overcoming it very quickly,."
Food insecurity also has been a major topic even before the meeting began. The US, several global development banks and other groups rolled out a multibillion-dollar plan Wednesday to address the danger facing an increasingly fragile world economy.
Russia's invasion of Ukraine has produced a sharp increase in food and energy prices that is contributing to a slowdown in growth and threatening global stagflation — when inflation and unemployment are high and economic output is low.
The two countries are huge exporters of wheat, barley and sunflower oil, with interrupted food and fertilizer supplies raising already high prices and threatening food insecurity in Africa, the Middle East and parts of Asia.
Yellen said Wednesday that “the economic outlook globally is challenging and uncertain” and that "higher food and energy prices are having stagflationary effects, namely depressing output and spending and raising inflation all around the world.”
Finance ministers also plan to talk about efforts to get China to ease debt pressure on poor countries it has loaned money to.
“The situation of the low-income states poses a risk for global food security and the stability of the international financial system,” Lindner said.
“I remind China of its responsibility for this security situation,” he added. “We need more transparency when it comes to global debt issues and for sure, this is a topic of this meeting too.”