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THE UKRAINE CONFLICT’S IMPACT ON THE WORLD ECONOMY

By TCM Group, Administrator | Sep 15, 2022

The events in Ukraine have without a doubt had a significant impact on global growth in both economic and socio-economic terms – this was the general announcement made by The Organisation for Economic Cooperation and Development (OECD), following a report on the effects of the Russian-Ukrainian war on economies over the next few years.

The OECD has issued a warning that, in addition to the humanitarian crisis brought on by the large number of migrants fleeing Ukraine, there will also be major ongoing economic repercussions on commodities, global GDP and inflation.

A Hit On Commodities

The crisis between Russia and Ukraine is continuing to have a profound effect on commodity prices globally.

Oil prices are predicted to hover around US$100 until an end to the conflict in Ukraine is found. And, sanctions on Russian exports are further keeping traders away from Russian oil for fear of international sanctions on Russian entities.

The price of gas this year will rise by at least 50% on average after the 5-fold spike seen in 2021, with gas supplies in Europe being the most constrained, further raising fears about the impending 2022 winter.

Russia is a significant producer of a number of metals, including nickel, titanium, palladium, and aluminium, all of which will see further shortages and price hikes as long as the conflict persists.

A spike in the cost of agricultural commodities such as wheat, corn, barley, and rapeseed has already been seen. Together, Ukraine and Russia represent more than 25% of the global wheat trade, further Black Sea shipping route disruptions could put more pressure on grain prices.

A Decrease In Worldwide GDP

The global economy has been and will continue to be significantly impacted by the conflict in Ukraine. The primary, direct effects of the conflict have been rising energy prices and a loss of confidence in the global economy and financial markets.

“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hampering growth. For many countries, a recession will be hard to avoid,”

World Bank President, David Malpass.

The OECD is one of the first international organisations to attempt to conduct a preliminary evaluation of the impacts of the conflict in Europe so far. “The degree of the economic impact,” according to the OECD, “is quite unpredictable and will partly rely on the duration of the conflict and political measures to contain its effects. However, for now, the war will put the brakes on short-term global GDP rises and cause further inflationary pressures.

It is predicted that the conflict may increase worldwide inflation by roughly 3 percentage points and a reduction in the level of global GDP of about 1% in 2022 when compared to pre-war models. (source: Global Econometric Model (NiGEM) )

IMF Inflation Warnings

Inflation is another major risk to the world economy, caused by rising food and energy prices as well as supply chain bottlenecks and labour shortages. Because of the global rise in inflation, central banks have aggressively increased interest rates, which typically aim to bring down prices but hinder economic growth and cause deep inflationary shocks, putting millions of helpless individuals around the globe through financial hardship.

The International Monetary Fund (IMF) scaled back its forecast for world growth, noting major threats from high inflation and the Ukraine crisis that, if not contained, may push the world economy perilously closer to a recession. However, despite the doom and gloom, it said “Inflation is forecast to approach pre-pandemic levels by the end of 2024”, however, making it clear that as of right now, these projections are purely hypothetical.

Read more about The Impact of Inflation on the UK

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