[Economics] The conflict in Russia and Ukraine threatens the global economy

[#Wittels-]

Russia is the world's third largest oil producer and a major exporter of natural gas.

Just what a vulnerable world doesn't need: a conflict that accelerates inflation, reminds markets and heralds trouble for everyone, from European consumers to debt-ridden Chinese developers and families in Africa facing rising food prices. .

Russia's attacks on Ukraine and retaliatory Western sanctions could not bring about another global recession. Together, the two countries account for less than 2% of the world's gross domestic product. And many regional economies remain in good shape, having recovered quickly from the pandemic-related recession.

However, the conflict threatens to cause serious economic damage to some countries and industries, damage that could spell hardship for millions of people.

Russia is the world's third largest oil producer and a major exporter of natural gas. Ukrainian crops feed millions of people around the world. And financial markets are in a precarious state as central banks prepare to reverse years of easy money policies and raise interest rates to combat a spike in inflation. Those interest rates are likely to curb spending and pose the risk of another crisis.

 

“I would not be fooled by calculating only based on GDP rates (...) especially at a time when crop prices are already high, inflation is already high,” said Elina Ribakova, number two economist at the Institute of International Finance, a trade group of banks. “It is a treacherous time, given the state of the global economy.”

Russia's attack could slow Europe's economic recovery by further spiking already high energy prices. Europe, a net importer of energy, receives almost 40% of its natural gas from Russia. Cutting off that source could hit the continent's economy. High natural gas prices have already raised household bills for natural gas heating and gas-fired electricity, reducing consumer spending.

"Gas prices are already stifling households and consumers, especially low-income households," said Adam Tooze, director of Columbia University's European Institute and who wrote a book on the financial crisis of the last decade, " Crashed”, which analyzed the tensions around Ukraine.

The cost of gas has forced a reduction in production in industries that require a lot of energy, such as fertilizer producers. Annual inflation reached 5.1% in January in the 19 countries that use the euro, the highest figure since records began in 1997.

 

"Escalating tensions put at greater risk the two pillars of the recovery in growth expected for this year: a rebound in consumer spending and an increase in industrial activity," Oliver Rakau and Mateusz Urban, of Oxford Economics.

 

Threats to farms in eastern Ukraine and exports through Black Sea ports could reduce wheat supplies at a time when global food prices are at their highest since 2011 and some countries face shortages. food.

Ukraine is the world's fifth-largest wheat exporter, agricultural analyst Alex Smith noted last month in Foreign Policy magazine, and many of the countries that depend on its wheat "already suffer from food insecurity due to continued political instability or outright violence." Yemen, for example, imports 22% of its wheat from Ukraine, Libya 43% and Lebanon around half.

In addition, against a backdrop of geopolitical concerns, investors could rely on treasuries and other safer investments, driving up the cost of credit for riskier businesses, said Michael Taylor, managing director of Moody's investor services.

"Chinese real estate developers would be especially exposed to this risk," in the process of covering a large foreign debt this year, Taylor said.

 

Financial markets could become even more chaotic if the United States resorts to what some call the "nuclear option": Banning Russia from the SWIFT payment network, a messaging service that connects miles of banks and allows them to transfer payments around the world. world.

That would isolate Russia and prevent the transfer of profits from energy production, which account for more than 40% of the country's income. But kicking Russia out of international finance could also backfire, hurting American and European companies that do business with Russian companies.

"There is a risk for global finance as well as for Russia," said Ribakova of the Institute of International Finance.

 

Link: https://www.ecuavisa.com/noticias/internacional/el-conflicto-de-rusia-y-ucrania-amenaza-a-la-economia-global-YC1370346