Along with the staggering humanitarian crisis, Russia’s ‘military operation’ in Ukraine has now provoked a downgrade in global economic growth forecasts. Analysts and experts have largely downgraded forecasts primarily owing to the volatile commodity prices, supply chain disruptions, and risks of the Russia-Ukraine war worsening.
Russia and Ukraine are major commodities producers, and disruptions have caused global prices to soar, especially for oil and natural gas. Food costs have jumped, with wheat, for which Ukraine and Russia make up 30 percent of global exports, reaching a record.
Beyond global spillovers, countries with direct trade, tourism, and financial exposures will feel additional pressures. Economies reliant on oil imports will see wider fiscal and trade deficits and more inflation pressure, though some exporters such as those in the Middle East and Africa may benefit from higher prices.
Steeper price increases for food and fuel may spur a greater risk of unrest in some regions, from Sub-Saharan Africa and Latin America to the Caucasus and Central Asia, while food insecurity is likely to further increase in parts of Africa and the Middle East.
Global scenario
Overall, it expects the G-20 economies to expand 3.6% collectively in 2022, compared with the 4.3% growth forecast earlier in February. It further expects growth to slow to 3.0% in 2023. Among the advanced economies in G20, it expects an expansion of 3.2% in 2022 and the G-20 emerging market countries to grow 4.2% in 2022, down from its forecasts of 3.9% and 4.9%, respectively, before the invasion of Ukraine.
Oil markets were volatile on supply disruptions due to the sanctions on Russia in the previous session, with Russian exports at 4 to 5 million barrels per day more than any other nation other than Saudi Arabia.
The international benchmark for oil – Brent crude futures, rose to within 16 cents of $120 a barrel – highest since 2012, before falling to settle at around $110, on hopes the United States and Iran will agree soon to a nuclear deal that could add output to a badly undersupplied market.
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 percent of the world’s gross domestic product.
Most major economies have only limited trade exposure to Russia: For the US, it’s 0.5 percent of total trade. For China, around 2.4 percent.
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 percent drop in global GDP this year.
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 percent of its natural gas and 25 percent of its oil.
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