How will the food shock impact emerging market GDP growth?

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The global food shock is projected to negatively impact emerging market GDP growth for several years.

The current food crisis, significantly worsened by Russia's invasion of Ukraine, is not anticipated to be a short-term issue but rather a prolonged challenge extending over years. This sustained crisis will perpetuate existing problems such as fertilizer shortages, export controls, and disruptions to global trade, all of which contribute to escalating fuel and transport costs. These factors collectively exert downward pressure on the Gross Domestic Product (GDP) growth of emerging market economies.
Prolonged Supply Chain and Cost Pressures

The ongoing conflict in Ukraine has amplified existing supply chain vulnerabilities that were initially exposed by the COVID-19 pandemic. Russia and Ukraine are critical global suppliers of essential commodities like wheat, maize, rapeseed, sunflower seeds, and sunflower oil, accounting for a significant portion of globally traded food calories. Furthermore, Russia's position as a major fertilizer exporter in 2020 means that disruptions to its supply have led to substantial increases in fertilizer costs, with some instances in Malaysia seeing prices rise from RM500 per tonne to RM1,900 per tonne. These persistent increases in production and transport expenses directly impact the cost of food and, consequently, the overall economic output of nations.
Exacerbated Fiscal Performance and Social Stability

The negative implications of the food shock extend beyond GDP growth to affect the fiscal performance of emerging market countries. Governments may face increased pressure to subsidize food prices or provide social safety nets, straining public finances. This can lead to wider fiscal deficits and potentially impact a country's ability to invest in other critical sectors. The combination of reduced economic growth and strained public finances can also heighten social instability, as populations grapple with rising living costs and potential shortages.
Potential for Rating Downgrades in Emerging Markets

Even emerging market countries with already low credit ratings face the prospect of further downgrades due to the food shock. S&P Global Ratings has indicated that the negative economic or political fallout from this crisis could contribute to such rating actions. The severity of these potential downgrades will hinge on several factors, including the extent of a country's exposure to the food shock, the effectiveness of its government's measures to mitigate the impacts, and the availability of international support. Countries in Central Asia, the Middle East, Africa, and the Caucasus, which are highly reliant on food and fertilizer imports from Russia or Ukraine, are particularly vulnerable to these repercussions.

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How will the food shock impact emerging market GDP growth?

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