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Beware a Global Economy with Little Fires Everywhere

Rich countries have shown impressive unity in helping Ukraine counter the Russian invasion. They now need to demonstrate the same level of resolve to prevent the global economic fallout from the conflict from destroying the lives or livelihoods of many of the world’s most vulnerable people.

CAMBRIDGE – Big shocks to the global economy, such as Russia’s invasion of Ukraine, understandably capture the most attention. But a new worldwide pattern of “little fires everywhere” may be equally consequential for longer-term economic well-being. Over time, these small fires can coalesce into one that is just as threatening as the initial large fire that acted as the catalyst.

In addition to causing widespread death and destruction, and displacing millions of people, the Ukraine war continues to stoke strong stagflationary winds throughout the global economy. The resulting damage – whether in the form of higher food and energy prices or new supply-chain disruptions – cannot be easily or rapidly countered by domestic policy adjustments.

For most countries, the war’s immediate economic consequences include higher inflation (which erodes purchasing power), lower growth, increased inequality, and greater financial instability. The multilateral system, meanwhile, now faces greater obstacles to the type of cross-border policy coordination needed to deal with pressing global problems such as climate change, pandemics, and life-threatening migration.

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