Mind-blowing economic fallout of Russian-Ukrainian war

The war in Ukraine has resulted in some of the darkest days in Europe since WWII. The fallout is about to hit the rest of the world hard.

Russia’s war has resulted in unthinkable misery for those facing it head-on in cities and towns throughout Ukraine.

Now, forecasters have revealed how far that misery will spread as the world stares down a global conflict with no end in sight.

Just how serious the economic fallout is expected to be has been laid bare by the Economist Intelligence Unit (EIU), a business which provides forecasting and advisory services, as the war enters its third month.

The EIU expects the war to last until at least the end of this year, with financial sanctions western countries have placed on Russia to remain until at least 2026 (its entire forecast period).

As a result, the world is going to continue to see higher prices of commodities, especially oil and gas, and further disruptions to the already struggling global supply chain.

“The rise in commodity prices will further fuel global consumer price inflation, which will reach 7.7 per cent this year — its highest level in 26 years,” EIU global forecasting director Agathe Demarais said.

Commodity price rises

Ms Demarais said oil prices would remain elevated as long as the war lasts, with oil expected to trade at $US100-120 a barrel for the rest of the year (about $30 dearer than last year).

But it’s not the only commodity affected.

“Natural gas prices will rocket, while prices of grains, oilseeds and base metals will rise by 20-30 per cent, on top of even sharper rises in 2021,” she said.

The increasing price of base metals is because Russia is a major producer of things like aluminium, titanium, palladium and nickel.

The EIU global outlook summary said it would have a “substantial impact” on industrial sectors across the globe, such as the automotive industry.

As for the soaring price of grains, Ukraine and Russia together account for more than a quarter of global wheat trade and produce 12 per cent of calories consumed globally.

In regards to gas, the EIU expects further pressure on global supplies as Europe reduces its demand for Russian gas and the country lowers its output.

Europe has limited gas stockpiles and there are concerns about gas supplies for the winter season at the end of the year.

Supply chain disruptions

The pandemic took its toll on the global supply chain, with factory closures, ships stuck in queues, containers stuck in ports and huge delays on goods.

The Russia-Ukraine war has now torn apart the expectations of recovery of the supply chain.

Land, sea and air trade routes are disrupted due to sanctions, airspace bans and security concerns.

For example, the EIU said Russia’s restrictions on the use of its airspace would disrupt Asia-Europe air routes.

The actual battle and destruction of transport infrastructure in Ukraine has also caused supply chain issues.

Currently there is about 1.25 million tonnes of grain and oilseeds stuck on ships that are blocked in Ukrainian seaports, and it is expected to spoil in the near future.

Global growth forecast

The EIU has revised down its global economic growth forecast for this year due to the war.

“Global growth will take a 0.6-percentage-point hit; we now forecast that it will stand at 3.3 per cent in 2022, down from our pre-war forecast of 3.9 per cent,” Ms Demarais said.

“Much of the economic impact of the war will be felt in Russia and Ukraine, but we have revised down sharply our forecasts for other European countries too.

“We expect that growth in the euro zone will stand at 2.9 per cent this year (down from a pre-war forecast of 4 per cent); the region will suffer from an energy and trade shock.

“Despite risks to global growth, we do not expect the world’s major central banks to change course on monetary tightening.

“In fact, we now expect the Federal Reserve (the US central bank) to raise rates aggressively in 2022, by 225 basis points, and to begin balance-sheet run-off.”