Economic Impacts of the Russia-Ukraine Conflict

The world’s current disarray is rapidly increasing as the war between Russia and Ukraine has dimmed the global economic future. According to the World Trade Organization, the conflict will most impact low-income counties.

Besides food supply shortages, the Russia-Ukraine war impacts gas delivery and other daily necessities, posing a serious threat to the world’s economic well-being.

Because of it, world-renowned economists have lowered the expectations for the growth of merchandise trade volumes for 2022 – from 4.7% to 3%.

Without a doubt, the unfortunate conflict between Russia and Ukraine will force heavy economic implications on the world’s economic future as a whole. Following are several of them.

Restraining Supply Chains

Before the world economy suffered a blow, most companies in China, the USA, and the UK reported an increase in the quality of the processes of the import and export of goods and services and a rise in the trade volumes globally.

Prior to 2022, supply chains weren’t constrained, but all of that changed, reversing the benefits of an uninterrupted chain of distribution.

Due to Russia and Ukraine being the number one exporters of aluminum, nickel, and palladium, the delays in acquiring the goods led to a halt in global industrial production. The shortage of metal delivery heavily impacted the automotive and aircraft industries.

Besides impeding the supply of industry-essential metals, the Russia-Ukraine war has influenced one particular country – Germany. Since the country relies heavily on the import of fossil fuels from Russia, it became hard for Germany to keep up with the production of clean energy.

Besides disrupting the metal supply chain to Europe, and the import of fossil fuels from Russia, the Ukraine-Russia conflict also hampered the food supply chain.

Ukraine is the 5th largest wheat exporter, rounding at $4.61 billion in 2020 alone. On the other hand, Russia is probably the world’s biggest exporter of this agricultural product, with $10,1 billion in the same year.

If you are interested in additional information, find the latest financial information on Fastbull, together with more news on how the stock market, for example, is impacted by the Russia-Ukraine conflict.

Rising Inflation

Other than disrupting the supply chains on a global scale, the Russia-Ukraine conflict has made inflation rates skyrocket.

With Russia being the key player in the gas supply chains, the restrictions placed upon the country impeded gas delivery, leading to a huge increase in prices. Since the war started, gas prices have increased – the current price is around $100 per barrel.

If the prices stay as they are currently, energy bills will see a definite increase in the near future, which will further burden the population’s incomes.

Moreover, the wheat and sunflower oil shortage caused these commodities to reach new heights. In May 2022, the price of wheat hit a record increase and was traded at 1277.50 USD/BU.

According to the report issued by the European Central Bank, the prices of commodities and energy will undoubtedly yield high inflation rates.

Hampered Economic Growth

Due to inflation skyrocketing, naturally, global economic growth has been hindered, posing a threat to the financial survival of businesses and the population. According to a simulation analysis done by KPMG, if the inflation rates keep going up, demand will heighten while trading channels will remain disrupted.

For example, a 10% rise in oil prices and a 50% rise in gas prices will reduce 0.5% in the GDP of reputable European countries’ economies.

Other than Europe, the USA and the rest of the world will also suffer a decrease in GDP percentages.

In the US alone, oil and gas contributed close to $1.7 trillion to the national GDP, which translates to 7.9% of the total economic output. However, these numbers could easily be lowered due to inflation and the restraint on supply chains caused by the Russia-Ukraine conflict.

According to the latest economic update by the World Bank, the region around Ukraine and Russia is deemed to suffer a flop in the economy by 4.1%, which is twice as much as what happened to the region’s economy during the pandemic in 2020.

Takeaway

Even though no one thought it would be possible for counties to go to war in the 21st century, sadly, we are all witness to a conflict between two counties that have a significant impact on the world economy.

From breaking off supply chains to causing the prices of commodities to reach new highs, the economic implications of the war between Russia and Ukraine are devastating.

The economic growth of the Eastern European region, and the world, for that matter, is brought into question. Although hope for a peaceful resolution is still present at large, it is left to future actions from both sides, which will undoubtedly, determine the course of the world’s economy and overall future.