Russian invasion poses serious threat to global economic recovery

The global economy is yet to recover from the devastating impacts of the Covid-19 pandemic. Against this backdrop, the ongoing Russian invasion in neighbouring Ukraine poses a grave threat to the world economy. Experts warn that the world has entered a geopolitical depression that will have massive economic and financial consequences beyond Ukraine. This conflict is potentially the most severe in Europe since the Second World War. The early days of the war sent tremors through the world economy by jacking up energy prices. Oil climbed past $100 a barrel for the first time since 2014, while European natural gas jumped as much as 62 per cent. 

As the energy markets in the world are so deeply integrated, a spike in global oil prices will have negative consequences across the globe. If energy prices continued to soar, it could easily tip the global economy into a second recession in three years. This war is likely to trigger a massive negative supply shock in a global economy that is in the midst of a build-up of inflationary pressures. According to pertinent observers, the shock will reduce growth and further increase inflation at a time when inflation expectations are already becoming unanchored. The conflict is also forecast to worsen existing pandemic-related inflation, supply chain delays, and labour shortages in the US and various nations around the world.

Russia is a huge country with 146 million people and a large number of nuclear arsenals. The country is a key supplier of the oil, gas and raw materials that keep the world’s factories running. Russia and Ukraine are two of the largest exporters of wheat. When Russian forces invaded Ukraine, the global supply of the grain was put in jeopardy, and the price of wheat jumped to its highest levels since 2012. The two countries account for 19 per cent of world corn supplies, and 80 per cent of world sunflower oil exports and naturally supply channels would be disrupted. Economists also warned about the pressures on businesses exposed to supply chains in which Russia plays a crucial but little-known role, such as the production of critical raw materials. The country supplies about 40 per cent of the world’s palladium, a key component of catalytic converters in petrol-powered vehicles as well as electronic devices.

The whole process of the recovery of the global economy is being threatened because of this uncalled for Russian invasion. The World Bank President David Malpass said in a statement that “the devastating developments in Ukraine will far-reaching economic and social impacts. The World Bank and the International Monetary Fund leaders have indicated that they were prepared to help Ukraine. The IMF is deploying $2.2 billion in assistance to Ukraine under a loan programme set to end in June.

As Ukraine fights for survival, Western governments are taking steps to take punitive measures against Russia. US President Joe Biden announced new sanctions that target Russia’s banks and its ability to trade in dollar. Cutting off Russia’s access to the system of international payments known as SWIFT or blocking companies from selling anything to Russia that contains American-made components, would hurt anyone who does business with Russia. It must be said here though the United States is much less vulnerable than the European Union, which is Russia’s largest trading partner. Western countries are aware that by taking actions against Russia they could heighten the conflict’s impact on their own economies. An agency report citing analysts has stated that Russia has prepared to deal with such an eventuality for years. It has built up a war chest of cash and gold, and has very low debt.

According to international media, the world should be bracing for higher inflation, lower growth, and disruptions to financial markets. Unless better sense prevails a conflict of global proportions cannot be ruled out. The UN and non-aligned states must act swiftly to prevent a dangerous conflagration. This is a crisis that is not easy to resolve. But it must be resolved and soon. It will only get more difficult to resolve with the passage of time.