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Beware of a Global Economy with Small Fires Everywhere by Mohamed A. El-Erian

Rich countries have shown impressive unity in helping Ukraine counter the Russian invasion. They must now show the same determination 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 – Major shocks to the global economy, such as the Russian invasion of Ukraine, understandably draw the most attention. But a new global pattern of “little fires everywhere” could be just as consequential for longer-term economic well-being. Over time, these small fires can coalesce into one that is just as menacing as the initial large fire that acted as a catalyst.

The war in Ukraine not only causes widespread death and destruction and displaces millions of people, but also continues to fuel strong stagflationary winds across the global economy. The resulting damage – whether in the form of higher food and energy prices or new supply chain disruptions – cannot be easily and quickly counteracted by domestic policy adjustments.

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

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