The trauma has been revealed, how will the Conflict between Russia and Ukraine affect the world economy?

In the past 11 days since the Russian-Ukrainian conflict on February 24, with the postponement of the war and the heavy sanctions imposed by the West on Russia, the world has felt a strong "resonance": the stock market has plummeted, oil prices have soared, food prices have risen, metals and minerals have become more expensive, and supply chains have become more disordered.

The world economy has slowly recovered from the new crown epidemic, but in 2022, it has flown out of the "black swan" of the geopolitical conflict between Russia and Ukraine, and the recovery process of the world economy is facing a high degree of uncertainty.

Huge shock wave

Looking back at the past 11 days, the two battlefields have been "exchanging fire" at the same time.

Since February 24, Russia has launched special military operations in Ukraine, and the Russian-Ukrainian conflict is on the verge of breaking out. Since then, the United States and Europe and its allies have launched comprehensive sanctions against Russia, covering finance, aviation, shipping and other fields, and even "sword" Russian President Putin himself. On February 26, it was even launched a "financial nuclear bomb" - the removal of some Russian banks from the SWIFT system, including the first attack on the Russian central bank. On March 5, local time, two credit card brands, MasterCard and Visa, announced that they would stop operating in Russia. According to the Wall Street Journal, Visa and MasterCard accounted for 74% of Payment Transactions in Russia in 2020.

Russian President Putin made a speech on the 5th, fiercely attacking the Western sanctions against Russia, saying that it was almost a "declaration of war".

In fact, the current Russian-Ukrainian conflict has been regarded as a "hybrid war" integrating military, diplomatic, financial, and information. Some see it as the largest conflict in Europe after World War II, while others liken the impact of Western sanctions to the "aftershocks" of the 9/11 terrorist attacks, arguing that it will prompt a deep geopolitical adjustment. Some people even quoted former US President Richard Nixon as saying, "One era is over, another era is beginning."

Whether this conflict and the "war of sanctions" will become a turning point in world history remains to be seen, but the huge shock wave that has formed on the world market in the past ten days or so has been shocking.

Global stock markets are in deep turmoil. Data show that under the Conflict between Russia and Ukraine, so far this year, the cumulative decline of the European Stoke 50 Index, the German DAX30 Index, and the Nasdaq has expanded to 13%. Over the past week, the S&P 500 has fallen nearly 9 percent weekly, its biggest weekly decline since June 2020. The Russian stock market was on the verge of collapse: at one point it plunged more than 50 percent in a single day and was forced to close for several consecutive days.

Energy prices are soaring. On February 24, the Price of Brent Crude Oil Futures in London and the Price of Light Crude Oil futures in New York both broke through the intraday mark of $100 per barrel, hitting a new high in more than 7 years. By March 4, the two had broken through $115 and $118 a barrel, respectively. Wholesale european gas prices have also hit record highs, with European gas prices soaring 240% since the beginning of this year.

The grain market also saw a rare one-week increase. Wheat prices have risen more than 40 percent in the past week to their highest level since 2006; corn prices have risen 14.72 percent to their highest level since 2013.

Prices of metals and minerals have also skyrocketed, especially aluminum, nickel, palladium and so on. Palladium is one of the important metals for manufacturing automotive catalytic converters, and because the price of palladium has risen by more than 60% this year, the "core" of the automotive industry has not healed, and new injuries have been added.

Analysts say that although Russia and Ukraine together account for only 3% of the world's economic output, both countries have their own resource endowment advantages. Russia is one of the world's largest energy producers and exporters, as well as an important exporter of wheat, metals and mineral products; Ukraine is also a global "big exporter" of cereals and non-ferrous metals, and exports a large amount of wheat to the Middle East and Africa, accounting for 40% of its exports. According to S&P Global data, Russian-Ukrainian wheat exports together account for 23% of global exports.

Together with the Russian-Ukrainian war, "the order and network of global supply of energy, food and other commodities will be disrupted, and the outside world is worried that the shortage in some areas will become more severe, resulting in rapid price increases." Xu Mingqi, a distinguished researcher at the Shanghai Institute of International Finance and Economics, said that this will lead to further disruption of the global supply chain and push up prices and exacerbate high inflation.

Chen Fengying, a researcher at the China Institute of Contemporary International Relations, believes that the high prices of oil, grain and mineral products are not entirely due to the Conflict between Russia and Ukraine, but also have the factors behind the previous NEW CROWN epidemic and the speculation of floating funds, because commodities have been financialized.

According to the Wall Street Journal, before the Russian-Ukrainian conflict, global food prices were at the highest level in 10 years due to the new crown epidemic hindering logistics and transportation, and some planting areas reduced production due to heavy rains.

Some Wall Street agencies believe that given the prospects for possible sanctions and counter-sanctions in Europe, the United States and Russia, it may not be the end of the energy price rally at this time.

Xu Mingqi estimated that Russian and Ukrainian agricultural production may not be directly affected by military conflicts, but the cost of warehousing, transportation and international trade will rise sharply.

Will the recovery be frustrated?

The International Monetary Fund (IMF) warned on the 5th that the Russian-Ukrainian conflict is driving up world energy and food prices, and the conflict and related sanctions will have a serious impact on the global economy.

In Xu Mingqi's view, the global economic recovery has been difficult, conflicts and sanctions will be worse, and the economy, finance and trade will be negatively affected.

First, the world economic recovery will be frustrated.

The IMF expects the global economy to grow by 4.4 percent in 2022, a goal that is unlikely to be achieved.

Among them, the economies of Russia and Europe may be affected.

Xu Mingqi believes that although Western financial sanctions will not destroy Russia, they can seriously damage the Russian economy and aggravate the pain and difficulties of the Russian economy.

"The sanctions will restrict Russia's economic activities at home and abroad, and freeze its foreign exchange reserves and overseas resources, and stop Russia from financing in the international market." Although Russia can still export energy, the scale of exports is likely to shrink, and 7 Russian banks have been kicked out of the SWIFT system, and future transaction costs will rise. ”

In fact, the trauma has already manifested. The dollar surged more than 40 percent against the ruble on Feb. 28 to a record 1-119. Since the beginning of this month, the dollar has risen by about 50% against the ruble.

For Europe, the longer the conflict drags on, the worse it will be for its recovery. Moreover, the major EU countries are now investing more resources in armaments, which is bound to reduce their investment in recovery. As an important component of the global economy, the slowdown in European economic growth will also drag down the global economy.

In addition, the United States and Europe will also bear the cost of sanctions, including rising energy prices, financial turmoil, rising prices, and even more difficult times.

Oxford Economics data show that if the Conflict between Russia and Ukraine protracts and Russia's anti-sanctions against Europe playing the "energy card", inflation in the euro area may reach more than 7%, and the British inflation rate will exceed 10%.

Xu Mingqi also reminded that the possibility of long-term sanctions cannot be ignored, "This conflict will exacerbate the confrontation between the East and the West, and the sanctions may not be immediately lifted with the end of the conflict, and the follow-up negative effects will continue to show." ”

Second, global financial instability has increased.

"Although Russia accounts for a small share of the global economy, it is still an important participant in the global economy. Russia's financial ties with the international market have been undermined by sanctions, which will inevitably lead to greater turmoil in the global market. In addition, as some multinational companies withdraw from the Russian market, their profits will decline, their stock prices will also fall, and a chain reaction will eventually affect the stability of financial markets. Xu Mingqi said.

Third, the market will increase volatility, risk aversion will rise sharply, and it will not be conducive to the development of global investment and trade.

Chen Fengying believes that although it is difficult for the world economy to achieve a strong recovery this year, the recovery trend will continue.

From the current point of view, the situation is in a stalemate, and the parties involved in the conflict still maintain a certain degree of rationality and have not interrupted communication. For example, Russia and Ukraine are still negotiating, the United States and Russia have also opened hotlines, and the international community is still trying to mediate. Thus, the conflict remains limited to localities and is not exaggerated to the point of escalating into "World War III".

So the two largest economies, the United States and China, are expected to guarantee trillions of dollars in increments this year. The European economy will be affected, but not in a recession. On the other hand, the role of the Russian-Ukrainian economy in pulling world economic growth is limited, and even if it is hit hard, it will not hinder the overall situation. "Moreover, Russia has already laid out today, such as diversification of asset allocation and gradual de-dollarization."

Some analysts say the direct impact of the conflict on U.S. recovery may be limited. Last year, two-way trade between the United States and Russia and Ukraine totaled just $40 billion, while Wall Street banks lent less than $15 billion to Russian borrowers.

However, Chen Fengying also pointed out that the recovery process of the world economy is facing a high degree of uncertainty, including supply chain problems, commodity price increases, inflationary pressures and so on.

It has also been pointed out that the situation in Russia and Ukraine and Western sanctions will not only affect world economic growth, but also have a far-reaching impact on the global economic structure.

The Economist believes that the Western financial and economic and trade crackdown on Russia will not immediately lead to a global economic crisis, "but will change the way the world economy works in the coming decades."

The Washington Post pointed out that the Russian-Ukrainian conflict and the unprecedented financial liquidation of Russia by the West may change the "rules of the game" of the global economy. When Russia is collectively isolated by the West, the already frustrated process of globalization will be hit harder, and financial and trade flows will be more difficult to integrate closely.

In this regard, Chen Fengying believes that the process of globalization will not be reversed, and the Conflict between Russia and Ukraine will not interrupt the process of globalization. Globalization is based on technology, digital economy, and interconnection, which determines that the world is still you have me, I have you. It is important to note, however, that the goals of globalization may change in the future. In the past, cooperation was supreme, cooperation was for win-win, and competition was also for cooperation. The future will be competition-oriented, cooperation for competition, competition for their own development and security.

(Edit email: [email protected])

Column Editor-in-Chief: Yang Liqun Text Editor: Yang Liqun Title Image Source: Figure Worm Image Editor: Xu Jiamin

Source: Author: Liao Qin