In addition to the horrific human costs of Russia’s invasion of Ukraine, there are also huge economic repercussions not only for Moscow and Kiev, but for the entire world.
There are two important questions about these repercussions. The first relates to the inflation caused by the war through the rise in the prices of oil, edible oil, wheat and fertilizers, and the second is the impact of the invasion on global economic activity, or whether both will occur at the same time.
Russia is a major producer of wheat, as well as Ukraine is an important exporter of grain and the world’s fifth producer of corn.
Ukraine and Russia are the first and second producers of sunflower seeds and sunflower oil, providing more than half of the world market.
The global effects of the Russian and Ukrainian grain shrinkage “could have major implications for countries in North Africa, the Middle East, and even parts of Asia,” says Julia Friedlander, director of the Atlantic Council’s Economic Statecraft Initiative.
Pending Expected “Yahoo News“With the rise in the prices of these commodities all over the world, this will lead to inflation in less stable markets as well.”
Russia is also a major global supplier of fertilizers, especially to Brazil, which uses them to produce soybeans, coffee and sugar.
The fertilizer price index has doubled over the past year and is now at an all-time high, which will surely drive up food prices.
The Russian invasion will be a burden on the global economy as it causes less business investment and less consumer spending.
“We think there is a huge threat,” says economist Dana Peterson. “We have lowered our forecast for global economic growth. There is already 3.9 percent growth for this year, but we have reduced it to about 3.5 percent, nearly half a percentage point.”
For the United States in particular, the consensus is that the damage will not be severe because there is a large consumer demand for energy.
Expectations are that oil prices must exceed $200 to trigger a recession in the United States.
But there can also be inflation and slow growth at the same time.
Peterson asserts that “high inflation will affect consumer demand…” and if you have less demand, that means lower consumption and that in turn will reduce GDP growth.”