Jakarta, IO – In comparison to the grim situation in 2020, the economies of G20 member countries improved in 2021. The Covid-19 pandemic had been so severe that only two G20 member countries, China (by 2.2 percent) and Turkey (by 1.2 percent ), were still able to produce positive annual GDP in 2020. In 2020, the remaining G20 states and the European Union experienced an average contraction of 4.9 percent.
The discovery of Covid-19 vaccines provided a ray of optimism, and vaccinations in G20 countries were were carried out fairly quickly. The economy might finally pick up in 2021, with an average growth rate of 5.7 percent across G20 countries, if tight health regulations are implemented (IMF, 2022).
Although the high economic growth in 2021 was also due to its rebounding from a low base effect of the previous year’s contraction among most G20 members, it gave a strong indication of a recovery underway. In fact, the global economy as a whole grew 6.1% in 2021, much better than 2020 when the world was hit by a recession as the economy shrank 3.1%.
Ukraine war reverses the recovery trend
The momentum of global economic recovery from the impact of the Covid-19 pandemic was halted when Russia-Ukraine tensions grew and led Russia to launch a “special military operation.” Although it is estimated that the negative impact of this war on the economy will not be as severe as the impact of the global pandemic, the war has changed the course of the global economic recovery. As a result of the war, the International Monetary Fund (IMF) cut its 2022 global economic growth forecast from 4.4% in January 2022 to 3.6% in April 2022.
In line with this, the economic growth outlook for G20 in 2022 on average could decrease from 3.8% to 3%. Further declines are possible if the war drags on. This indication can be seen at least from the outlook for G20 members’ growth rate in 2023, where the average was just 2.6%, lower than the outlook for 2022 (IMF, 2022). As G20 members represent more than 80% of world GDP the economic dynamics of the G20 countries will affect the overall global economic growth. If the G20 economies slows down, the global economy will also experience a downturn, and vice versa. (FIGURE-1)
After the Russia-Ukraine war, the majority of G20 members are expected to see their growth decline compared to pre-war level. Only Saudi Arabia, Argentina, Brazil and Australia are expected to grow slightly, driven by rising oil and commodity prices. The IMF also projects Russia’s economy will contract by as much as 8.5% in 2022 as a direct impact of the war. Global trade will also take a hit. The World Trade Organization (WTO) in April estimates global trade would only grow 3% in 2022, down from 4.7% earlier. In essence, the war has disrupted the still nascent and fragile economic recovery.