In light of recent events, the world is on its toes, waiting for what each next day may bring. The Russia-Ukraine war has disrupted the world’s dynamic, critically shifting each country’s future aims.
One of the more significant impacts is the turbulence of the financial market, which has significantly heightened concern about the state of the worldwide economy and its recovery. The world is subject to significant changes by the hour, and so are the threats of this conflict.
Here are some notable effects of this war.
The Conflict Risks Squeezing Energy And Commodity Markets Even More
The Russian Federation is the world’s third-largest producer of oil, the second-largest manufacturer of natural gas, and one of the top three steel and aluminum producers. They are also the most significant exporter of wheat (almost 20 percent of global trade).
On the other hand, Ukraine is the fourth biggest exporter of corn, the sixth of wheat, and holds first place in sunflower exports. The number of sugar beets, barley, soybeans, and rapeseeds that Ukraine produces places it in the top 10 worldwide.
High commodity prices were previously highlighted as one of the risks that may be detrimental to the recovery of the world following the pandemic. However, the development of the war has increased the chance that these keep growing for longer than initially thought.
In turn, this heightens the danger of persistently high inflation, raising the possibility of stagflation and societal discontent in both developed and developing nations. To read more on the economic progress, you can find the latest financial information on Fastbull.
The Most Vulnerable Sectors: Automotive, Transportation, and Chemical Industries
Ukrainian auto companies serve major auto manufacturers in Western Europe. Some declared factory shutdowns in Europe, while others are preparing outages due to microchip shortages.
Higher fuel costs would also hurt freight industries, especially airlines.
One-third of their overall expenditures are projected to be gasoline. Europe, the US, and Canada have barred Russian airplanes from their borders, while Russia has banned European and Canadian aircraft from their airspace. This entails increased expenses as airlines take longer journeys.
European enterprises can’t commerce with Russian Railways, which will disrupt railway activities between Asia and Europe passing through Russia. We anticipate petrochemical feedstock to be more costly and natural gas prices to affect fertilizer markets and the agri-food business.
European Countries’ Economies Are at Risk the Most
Europe seems to be the area most vulnerable to the effects of this war due to its reliance on Russian oil and natural gas. Replacement of all Russian natural gas supplies to Europe in the immediate to medium term is unfeasible, and current valuation levels will considerably impact inflation.
Fastbull estimates at least 1-2 percentage points of additional inflation this year. This would wear down household spending and, coupled with predicted declines in company investment and exports, reduce GDP growth.
While Germany and a few other EU members are more reliant on Russian natural gas, the interconnectedness of Eurozone nations’ commerce predicts a general slowdown.
Global Trade Interruptions and Inflation Will Affect Every Region
There will be a surge in commodity prices in the rest of the globe, exacerbating the already existing inflation. The rising costs of commodities will severely impact the importers of food and energy and bring substantial supply interruptions if the war worsens. The decline in European demand will also negatively impact global commerce.
A rise in energy costs would be noticed quickly in Asia-Pacific since several economies rely on imports of energy, notably China, Japan, India, and South Korea.
Both Ukraine and Russia’s commercial and financial ties are relatively weak in the United States. This means that the recent geopolitical developments are not likely to derail North American monetary policy, despite the risk of weaker economic growth and increased inflation.
Russian Economy Faces Potential Deep Recession
In 2022, the economy of Russia will be facing significant challenges and will probably enter a protracted recession.
Major Russian banks, Russia’s central bank, the Russian sovereign debt, and selected public figures and billionaires are among the sanctions targets. A sharp fall in the Russian currency is expected due to these actions, increasing consumer prices.
For now, Russia’s finances are in good shape, with a small but steady current account surplus and large foreign exchange reserves. However, the Russian central bank cannot use them due to the freeze imposed by western depositary nations, which diminishes the impact of the Russian reaction.
A Global Impact
The effects of this war will be significantly felt on all continents. Russian energy exports might profit from increasing commodity prices; however, EU governments have said that they want to restrict imports from Russia for the time being. This will inadvertently influence each sector of the economy.
On the other hand, Russian mining and manufacturing industries rely heavily on Western-produced semiconductors, computers and telecommunications, automation, and information security technology. Therefore, restricting access to these products will negatively impact the Russian economy.