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Could The Russia-Ukraine War Lead To a Global Recession?

Russia-Ukraine War
Russia-Ukraine War

Amid the war between Russia and Ukraine, concern is also arising about the economy around the world, but experts believe that despite the war, this year the global economy will be on the path of progress. However, he also says that the impact of the war will be felt in every corner of the world.

But how bad the effect will depend on how long the war lasts, the turmoil that the global market is going through now is a matter of time or its effect will belong. Here we are trying to understand how big an impact this war will have on the global economy, and whether it can lead to a global recession.

different effects in different places

According to Oxford Economics, a UK-based consultancy, the economic outcome of the war for Russia and Ukraine will be “dramatic” but will not be the same for the rest of the world.

For example, Poland and Turkey have very strong trade ties with Russia and are therefore at a higher risk than other economies in terms of the effects of war. In terms of fuel, Poland imports half of its requirements from Russia. On the other hand, Turkey gets one-third of its crude oil requirement from Russia.

In comparison, America’s trade with Russia is only 0.5 percent of its GDP. For China, this figure is 2.5 percent. In such a situation, it can be said that the Russian-Ukraine crisis will not have much effect on both of them.

Ben May, Director of Global Macro Research at Oxford Economics, says that when it comes to global economic growth, it is estimated that due to war, its rate can be reduced by 0.2 percent, that is, it can be from less than 4 percent to 3.8%. Is. He says, “But it depends on how long the war drags on. If this war goes on for a long time, the effect can be dire.”

‘Stagflation’ and the impact on oil prices

Another very important factor is the oil prices in the market, which are already rising due to the war. According to the US Energy Information Administration, Russia ranks third in the world in terms of crude oil production after the US and Saudi Arabia. In the year 2020, Russia produced 10.5 million barrels of oil per day. Of this, it exported 50 to 6 million barrels of oil, half of which only exported to Europe.

On March 7, the prices of Brent oil (crude oil extracted from the North Sea area) recorded a record increase amid fears of a possible stop by the US and Europe on Russia’s oil exports. Last week, a jump of 21 percent was seen in its prices in the international market, after which it increased by another 18 percent and decreased slightly and reached $140 per barrel.

On March 8, the US imposed sanctions on the purchase of oil from Russia and Britain said that before the end of the year 2022, it would completely stop buying oil from Russia. Rob West, head of research company Thunder Sed Energy, told the Financial Times: “The current situation could lead to crude oil prices reaching $200 a barrel.”

However, on March 8, Russian Deputy Prime Minister Alexander Novak went a step further, saying that “crude oil prices could rise unexpectedly. They could reach at least $300 a barrel.” In a message broadcast on state television, Novak said “it is clear that stopping the purchase of oil from Russia will have a terrible impact on the international market.”

The rise in crude oil prices not only increases the prices of diesel, petrol, or gas but also increases with it the cost of all essential commodities. Fuel is used for production and to move goods from one place to another, so oil prices are directly related to inflation. Economists at Barclays Bank say that this threatens to increase stagflation. Barclays has already cut its forecast for this year’s global economic growth by one percent.

Stagflation is a situation when inflation rises continuously and the economy comes to a standstill, that is, the growth of the economy slows down and unemployment increases. You can say that when inflation rises and GDP starts decreasing at the same time, then that situation is called stagflation.

Food prices will rise

The impact of the war can also affect the prices of food items, that is because both Russia and Ukraine are ahead in terms of agricultural production.

According to Wendel Shilobo, senior researcher in agricultural economics at Stellenbosch University and JP Morgan, Russia and Ukraine account for 14 percent of the world’s wheat production, and these two countries account for 29 percent of the global wheat market. Both these countries are also ahead in the production of corn and sunflower oil.

If exports from here are disrupted, it will affect the Middle East, Africa, and Turkey. Lebanon, Egypt, and Turkey buy the bulk of their wheat requirements from Russia or Ukraine. Apart from these, Sudan, Nigeria, Tanzania, Algeria, Kenya, and South Africa also depend on these two countries for their grain needs.

“The question for me is not whether there can be a global food crisis, the question for me is how big will this crisis be,” says Sven Torre Holsather, head of Yara, one of the world’s largest fertilizer companies. Fertilizer prices have already increased due to crude oil prices. Russia is also one of the largest exporters of fertilizers in the world.

Holster told the BBC, “We are in a difficult situation in this matter even before the war. One of the main reasons why half of the world’s population is getting grain is manure. If you remove manure from agriculture, agricultural production will drop by half.”

interest rates may increase

Jennifer McKeown, head of the Global Economics Service at Capital Economics, says that rising fuel and food prices will cause inflation in the economies of many developing countries to rise by at least one percent.

In some countries of Central Europe and Latin America, already struggling with inflation, the central bank may adopt the path of increasing interest rates to keep inflation under control. Jennifer McKeown told the BBC, “If this happens, it will be like increasing the burden on the economy.”

Meanwhile, it can be assumed that in some parts of Eastern Europe, countries like Germany, Italy, and Turkey, which are heavily dependent on crude oil from Russia, things will become more expensive for the people there.

consumer demand

McKeown says Asian economies will not be able to escape the impact on consumer purchasing power on a global scale. She says, “I think if consumer demand and export demand is affected, then Asia will also be affected. exports may be affected.

hard road ahead

Analysts predict that the global economy will see progress this year. One reason for this is that the economies recovering from the crisis caused by the Corona epidemic are trying to reach the level before the epidemic this year. Ben May says a return to normalcy will have a “good effect” on the growth of the economy.

Apprehensions are being expressed about the pace of development due to war, but its effect largely depends on how long the war continues and how much things get worse. Ben May says, “It is not as if it threatens the global economy going into recession or any such thing.”

However, Ben admits that the current situation “generally creates uncertainty” and that no one knows for sure how much the situation may worsen.

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