Washington, Moscow’s war on Ukraine and the ferocious financial backlash it’s unleashed are not only inflicting an economic catastrophe on President Vladimir Putin’s Russia.
The repercussions are also menacing the global economy, shaking financial markets and making life more perilous for everyone from Uzbek migrant workers to European consumers to hungry Yemeni families.
Even before Putin’s troops invaded Ukraine, the global economy was straining under a range of burdens: Surging inflation. Tangled supply chains. Tumbling stock prices.
A detailed analysis report published by the Associated Press (AP) said that the Ukraine crisis both magnified each threat and complicated the potential solutions.
“We are actually in uncharted territory,” said Clay Lowery, executive vice president at the Institute of International Finance, a trade group of global banks. “We know there are consequences that we cannot predict.’’
For now at least, the damage to the overall global economy appears to be relatively slight, if only because Russia and Ukraine are not economic powerhouses. Important as they are as exporters of energy, precious metals, wheat and other commodities, the two together account for less than 2% of the world’s gross domestic product.
Most major economies have only limited trade exposure to Russia: For the U.S., it’s 0.5% of total trade. For China, around 2.4%.
Barring a major escalation of the war — far from impossible — “the effects on the US, China and most of the emerging world should be limited,” said Adam Slater, lead economist at Oxford Economics. He foresees only a 0.2% drop in global GDP in 2022.
Still, Russia is a vitally important supplier of oil, natural gas and metals, and higher prices for those commodities are sure to inflict economic damage around the world. Europe relies on Russia for nearly 40% of its natural gas and 25% of its oil.
For the European continent, Russia’s war has significantly heightened the likelihood of runaway inflation, another economic setback or both.
Infuriated by Putin’s aggression, the United States (US) and other Western nations have targeted Russia with sanctions of unprecedented breadth and severity for a major economy. They have thrown major Russian banks off the SWIFT international payment system, limited high tech exports to Russia and severely restricted Moscow’s use of its foreign currency reserves.
The rapid and unified international retaliation against Russia appeared to catch Putin’s regime by surprise.
“The world — or most of it anyway — is laying economic siege to Russia,” wrote Carl Weinberg, chief economist at High Frequency Economics.
The sanctions quickly caused damage. The Russian ruble plunged to a record low. Depositors lined up at ATMs to try to withdraw their money from the embattled banking system. Cut off from Google Pay and Apple Pay, Russians were stuck at ticket booths at Metro rail lines.
The Institute of International Finance foresees the Russian economy enduring a double-digit contraction this year, worse even than its 7.8% drop in the Great Recession year of 2009.
Oxford Economics said evidence from wars ranging from the 1980-1988 Iran-Iraq war to the 1999 NATO bombing campaign against Serbia suggests that a staggering collapse of the Ukrainian economy of 50% to 60% is possible.
Natural gas prices shot up 20% after the war started, on top of earlier increases, and now are roughly six times what they were at the start of 2021. The gas price shock is feeding higher inflation and swelling utility bills. The result is that households have less money to spend, and hopes for a surge in consumer spending resulting from fewer pandemic restrictions and COVID-19 cases have diminished.
The world’s unexpectedly robust recovery from the pandemic recession left companies scrambling to find enough raw materials and components to produce goods to meet surging customer demand. Overwhelmed factories, ports and freight yards have meant shortages, shipping delays and higher prices. Disruptions to Russian and Ukrainian industries could delay any return to normal conditions.
The conflict and sanctions will also do damage to Russia’s neighbors in Central Asia. As its own workforce has aged, Russia has turned to younger migrant workers from such countries such as Uzbekistan and Tajikistan. Those workers’ families have come to rely on the money they send home — remittances.
Even at the height of COVID-19 in 2020, remittances from Russia to Uzbekistan topped $3.9 billion and to Kyrgyzstan $2 billion, according to the Russian central bank.
Ukraine and Russia account for 30% of the world’s exports of wheat, 19% of corn and 80% of sunflower oil, which is used in food processing. Much of the Russian and Ukrainian bounty goes to countries like Yemen and Libya.
The threat to farms in eastern Ukraine and a cutoff of exports through Black Sea ports could reduce food supplies just when prices are at their highest levels since 2011 and some countries are suffering from food shortages, the Associated Press (AP) news reported.
Source: Oman News Agency