Economic Impact of the Russia-Ukraine Conflict

The financial markets recovering from the adverse effects of the Covid-19 pandemic across the world suffered a significant setback following the conflict between Russia and Ukraine. Due to the impact of Covid-19, global exports fell by around seven percent in 2020. It is still unclear when the war will end, and if the battle prolongs for a more extended period, it will hurt the global economy. 

A trader needs to understand the significance of various global developments, including the Russia-Ukraine conflict and their impact on the financial markets. You can read the most updated financial news from reputed websites and financial publications to get more insights into developments like the Russia-Ukraine crisis.

In this article, let’s understand the significant economic impact of the Russia-Ukraine conflict. According to experts, there would be supply-chain disruptions in various sectors and increased commodity prices due to the war.

Sanctions

Following the war, the United States and the European Union have unleashed a series of economic sanctions against Russia. Despite hurting the prospects of the Central Bank of Russia (CBR) to access its $643 billion foreign-exchange reserves, the move to remove Russian banks from SWIFT will also affect the global payments system.

Supply Chain Issues

Countries who have trade with Russia will find difficulties in business due to the disruption in supply chains. The trade, primarily through land routes, between Asia and Europe will be affected due to the war. Similar will be the case for sea freight routes and air. Before the war started, some of the significant import partners for Russia included China, US, Germany, France, and Italy. The sanctions will hurt Russia and some of its partners. The European Union recently observed a possibility of lower growth for the 19 countries sharing the euro.

The Surge in Commodities Price

One of the significant impacts on the world economy from the war situation would be the prices of commodities. Sanctions, disruption in supplies, and infrastructure curbs are the likely reasons for an increase in prices.

Oil Prices

The price of crude oil has surged past $100 per barrel following the war, hurting the ordinary person’s life across the world. The gas prices will also increase by around 50 percent in 2022. It already witnessed a fivefold jump last year. According to experts, the curb in gas supplies can affect the European economy adversely.

Jump in Base Metal Prices

The prices of base metals are also set to increase because Russia is one of the leading manufacturers of base metals such as aluminum, titanium, palladium, and nickel. The price of base metals has registered an increase already and is likely to surge further in the coming days. The global automobile industry depends on many of these parts, and any disruption in supplies will affect the sales of vehicles.

Disruption in Agricultural Products

Both Russia and Ukraine are significant wheat producers, and the agricultural commodity price is likely to witness an increase this year. Similarly, the cost of maize, barley, and rapeseed will also increase. If there are blockades in trade routes in the Black Sea, it will further diminish the scope of a global recovery this year.

Increase in Inflation

Many central banks from different countries have already indicated the issue of rising inflation due to the global economic outlook. The increase in commodities prices will hurt the inflation scenario for many leading economic powers. According to experts, global inflation can increase this year and in 2023. It is likely to cross the six percent mark this year. The central banks of all countries are likely to increase interest rates to tackle inflation.

GDP Growth

Many countries were poised to post good numbers after tackling Covid-19. However, they will have to now settle for less growth this year due to the war and related developments between Russia and Ukraine. The economy of Russia and Ukraine is sure to face recessions in 2022 and ahead. Eastern European countries, especially Latvia and Lithuania, which have close trade relations with Russia, are also likely to face recessionary trends in their economies. According to some estimates, the GDP growth of Europe will come down to two percent, from the earlier projected growth of 3.9 percent.

Solution

The global economy can improve its prospects significantly if there is a ceasefire between Russia and Ukraine. The economic opportunities of all nations will suffer if there is uncertainty for a more extended period. Nations can prosper when there is peace and business confidence across the world. Experts opine that entrepreneurs’ confidence will improve once there is a slight improvement in the prospects of peace between two nations. Even if the situation improves now, it will take a while for the supply chains and other disruptions to remove quickly.