Global Impact of the Recent Russia-Ukraine Conflict

“The world economy will pay a “hefty price” for the war in Ukraine encompassing
weaker growth, stronger inflation and potentially long-lasting damage to supply
chains” ---Organization for Economic Cooperation and Development.

A war is always a human tragedy, and the war in Ukraine is no exception. The ripple effects
of the conflict are extending human suffering far beyond its borders.As 2022 began, the
world witnessed great optimism about post-COVID economic growth as many states
controlled rising inflation and stepped-up efforts to stimulate growth. At the same time,
Russia invaded Ukraine in February 2022. The war in Ukraine, in all its dimensions, is
producing alarming cascading effects to a world economy already battered by COVID-19
and climate change. The Russia-Ukraine war is having an outsized impact on the global
supply chain, impeding the flow of goods, fueling dramatic cost increases and product
shortages, and creating catastrophic food shortages around the world. UN Chief mentioned
it as “ ‘unprecedented wave’ of global hunger and destitution.”
Ukraine- Russia Crisis: Conflict at a glance:

Global Impact of the Recent Russia-Ukraine Conflict:

“Russia’s war of aggression against Ukraine continues to create serious headwinds

for global economy”--Organisation for EconomicCo-operation and Developmen
Economic Outlook.
"In this context, beyond its immediate and tragic humanitarian impact, the war will
slow economic growth and increase inflation. Overall economic risks have risen
sharply, and policy tradeoffs have become even more challenging."- International
Monetary Fund (IMF)

The Russia-Ukraine conflict has triggered turmoil in the financial markets, and drastically
increased uncertainty about the recovery of the global economy. The According to IMF,
the entire global economy would feel the effects with slower growth and faster inflation.
The global impact of Russia-Ukraine war is highlighted below:
1. Rising cost of living and Global inflation:

“Vulnerable people and vulnerable countries are already being hit hard, but make no
mistake: no country or community will be left untouched by this cost-of-living crisis.”-
UN Chief António Guterres.

The war against Ukraine has been accompanied by a sharp rise in inflation under the
pressure of food, energy and major commodity prices. Which will increase the living
expenses.
2. The conflict threatens to squeeze energy and commodity markets:
Russia is the world’s 3rd oil producer, the 2nd natural gas producer and among the top
5 producers of steel, nickel and aluminum. It is also the largest wheat exporter in the
world (almost 20% of global trade). On its side, Ukraine is a key producer of corn (6th
largest), wheat (7th), sunflowers (1st), and is amongst the top ten producers for sugar
beet, barley, soya and rapeseed. On the day the invasion began, financial markets
around the world fell sharply, and the prices of oil, natural gas, metals and food
commodities surged.
 3. Deep recession ahead for the Russian Economy:
The Russian economy will be in great difficulty in 2022, falling into deep recession.
Coface forecasts a deep recession of 7.5% for the Russian economy in 2022 and
downgraded Russia’s risk assessment to D (very high). Certain sectors such as automotive,
transport or chemicals are more likely to suffer.
4. European economies are most at risk:
Coface estimates at least 1.5 percentage point of additional inflation in 2022, while GDP
growth could be lowered by 1 percentage point. Together with a complete cut of Russian
natural gas supply, this could cost at least 4 points of GDP, thereby leading EU GDP
growth close to zero – more probably in negative territory – in 2022.
5. Food Supply in crisis:

One of the most alarming supply chain issues resulting from the Russia-Ukraine war is
food shortages, particularly acute in low-income countries. Ukraine and Russia account for
about a third of the world’s wheat and a quarter of barley production, not to mention some
75% of the sunflower oil supply — all critical commodities for keeping humans fed. Many
food producers are not able to access the agricultural inputs they need, so the impact of
current market disturbances may be felt through 2023.
6. Global Supply Shock as a result to rise on Oil and Gas Prices
Energy markets were already tight before the start of the crisis, following strong consumer
demand and high GDP growth in 2021. Though crude oil and natural gas are still around
50% above their level at the start of the year, they have witnessed volatile trading sessions
following key announcements since the start of the war. Because of Russia’s large share
of oil export, the Russian invasion of Ukraine is likely to lead to energy supply shocks and
a steady rise in energy prices.

7. Weaker economic growth:

IMF’s estimates suggest that a 10% rise in oil prices that is entirely supply-driven would
decrease world GDP by between 0.1% and 0.2%.
8. China – Europe routes disrupted:
The state of transportation routes connecting China with Europe is another casualty of the
Russian invasion. Surging gas prices are increasing freight costs for all modes of
transportation.
9. The Impact on the international stock markets

After Russia invaded Ukraine, stock prices on the world stock market plummeted. The
Dow Jones Industrial Average fell by higher than 100 points. The S & P500 index has
fallen by higher than 250 points. The EuropeNext100 index has fallen by higher than 400
points. The Shanghai Composite Index has fallen by more than 150 points. However,
stocks rebounded the day after the invasion after several countries announced strict
sanctions against Russia.

10.Impacts on the global banking system

The direct impact of the Russian invasion of Ukraine on the global banking system is
minimal. The only banking sectors that were severely impacted by the invasion are foreign
banks with large operations in Russia. These foreign banks were impacted after many
countries imposed financial sanctions on Russian banks and Russian wealthy individuals.

11.Global Supply Chain Disruption

The Military operations during the Russian invasion of Ukraine will affect operations in
many sectors by disrupting global supply chain. The embargo on Russian exports and the
retaliation against foreign imports by Russia disrupt the global supply chain.

12.Poverty and hunger

“71 million people have already fallen into poverty in just three months—a rate
much faster than during the pandemic. The Balkans, Caspian Sea, and sub-Saharan
Africa Sahel are particularly affected”-UNDP
The World Bank’s baseline projection assumes Ukraine’s poverty, based on the $5.50 per
day threshold rate, will increase from 1.8% in 2021 to 19.8% in 2022. The World Bank
said the latest surge in food prices could push an additional 40 million people under the
$1.90-per-day poverty line.

13.Economic recession

The World Bank predicted that the Ukrainian economy will contract by 45 percent in 2022
and the Russian economy by 11.2 percent due to the Russian invasion of Ukraine.

14.Foreign investment

The Russian invasion of Ukraine continually exacerbated the consumerism market within
the country, in which several foreign companies began to suspend their function in Russia.

15.Export restrictions on Russia

16.Automotive, Transport, Chemicals are the most vulnerable sectors
17.Global Trade disruptions

Here are further highlights of the Russia-Ukraine war impact:

“War in Ukraine is a crisis for women and girls”-- UN Women

18.Europe is one of the region’s most at risk should the war in Ukraine drag on or
escalate, as its economies are struggling to wean themselves off Russian fuel
19.Low-income economies are also at risk due to surging prices of basic food and
energy
20.Sharp increases in rates could slow growth more than expected
21.China’s Covid Zero policy continues to weigh on the global outlook

The Ukraine crisis has both magnified threat and complicated the potential solutions of
several economic factors.

According to the World Bank, “Russian Invasion of Ukraine Impedes Post-

Pandemic Economic Recovery in Emerging Europe and Central Asia”

Recommendations:

“The economic difficulties caused by Putin’s war are immense for many emerging
and developing countries. They demand more action from us in addressing them.”--
-Josep Borrel (EU Foreign Policy Chief)

The world needs to act with urgency to support countries affected by the crisis. The
proposed recommendations are……
  More aid and global cooperation on logistics to avert a food crisis
 Targeted government support for households hardest hit by rising cost of living
 Signals from central banks they won’t allow inflation to spread
 US monetary policy can tighten faster as prices driven by over-buoyant demand
 More solidarity in Europe on defense and energy spending
 Keep trade open to ensure diverse value chains for the green transition
 Call on all countries to keep engaging in multilateral fora to address urgent global
food, energy and financial issues.
 Solutions must be based on global, and not solely country-based, risk.
 Make immediate and efficient use of all the existing mechanisms to address both,
the countries directly suffering from the war
 Call not only on countries, but also on the private, civil society and the philanthropic
sectors to help the most vulnerable populations around the world and to be proactive
actors in the pursuit of coordinated solutions.
 Governments of countries that rely on food and fertilizer imports are seeking to
diversify their sources of supply.
 Enable food producers, especially smallholders, and local food processors, to
maintain decent livelihoods and to contribute to increases in local and national food
production through adequate access to seeds, fertilizers, and fuel.
 Governments need to fast track a just energy transition, emphasizing the role of
sufficient energy access for sustainable development.

Conclusion:
The war in Ukraine represents a challenge for the global economy harming growth. There
is no solution to this global crisis without a solution to the economic crisis in the developing
world. The global financial system must rise above its shortcomings and use all the
instruments at its disposal, with flexibility and understanding, to provide support to
vulnerable countries and vulnerable people.
References:
1. Al Jazeera
2. Coface.com
3. News.un.org
4. www.eeas.europa.eu
5. Wikipedia
6. Business Today
7. The Hindu & Reliefweb.int