Moscow’s war on Ukraine and the ferocious financial backlash it’s unleashed are not only inflicting an economic catastrophe on President Vladimir Putin’s Russia.
The repercussions are also menacing the global economy, shaking financial markets and making life more perilous for everyone from Uzbek migrant workers to European consumers to hungry Yemeni families.
Even before Putin’s troops invaded Ukraine, the global economy was straining under a range of burdens: Surging inflation. Tangled supply chains. Tumbling stock prices. The Ukraine crisis both magnified each threat and complicated the potential solutions.
‘We are actually in uncharted territory,’ said Clay Lowery, executive vice president at the Institute of International Finance, a trade group of global banks. ‘We know there are consequences that we cannot predict.’
For now at least, the damage to the overall global economy appears to be relatively slight, if only because Russia and Ukraine are not economic powerhouses. Important as they are as exporters of energy, precious metals, wheat and other commodities, the two together account for less than 2 per cent of the world’s gross domestic product. Most major economies have only limited trade exposure to Russia: For the U.S., it’s 0.5 per cent of total trade. For China, around 2.4 per cent.
Barring a major escalation of the war far from impossible the effects on the US, China and most of the emerging world should be limited, said Adam Slater, lead economist at Oxford Economics. He foresees only a 0.2 per cent drop in global GDP this year. Still, Russia is a vitally important supplier of oil, natural gas and metals, and higher prices for those commodities are sure to inflict economic damage around the world. Europe relies on Russia for nearly 40 per cent of its natural gas and 25 per cent of its oil. For the European continent, Russia’s war has significantly heightened the likelihood of runaway inflation, another economic setback or both.
The Institute of International Finance foresees the Russian economy enduring a double-digit contraction this year, worse even than its 7.8 per cent drop in the Great Recession year of 2009.