Finance ministers for the Group of Seven leading economies grappled Thursday with deepening inflation concerns and the immediate effects of Russia’s war in Ukraine, with U.S. Treasury Secretary Janet Yellen promising that the allies would put together enough additional aid to help Ukraine “get through this.”
“All of us pledged to do what’s necessary to fill the gap,” Yellen said as the ministers finished their first of two days of talks. Although she did not have a final number for the expected aid package, Yellen said: “The message was that we stand behind Ukraine. We’re going to put together the resources that they need.”
Yellen warned, though, that it all adds up to a “very difficult economic situation,” with ongoing sanctions against Russia that could generate some blowback for the U.S. 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.”
She added that finance leaders of leading economies are not planning to adjust the inflation targets that central bankers use as a guide when they adjust monetary policy to achieve a specific set rate of inflation.
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 finance minister, Serhiy Marchenko, and prime minister, Denys Shmyhal, who participated by video link. After the meeting Shmyhal tweeted, “Despite russia’s efforts to destroy our economy, together we will win!”
Lindner told reporters, “We are currently collecting the various pledges for direct liquidity help.” He said Germany pledged 1 billion euros in grants and expected “further progress” during the meeting.
As the finance ministers were meeting in Germany, the U.S. overwhelmingly approved its own $40 billion infusion of military and economic aid for Ukraine and its allies.
The finance 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 U.S., 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 talked 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.”
Jordans reported from Berlin. AP writer Geir Moulson in Berlin contributed to this report.
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