2. Brute Force team members
Abdirizak Abdullahi
Hassan Abdiaziz Hassan
Omar Ibrahim
Abdullahi Abdi Ali
Abdiaziz Mohamed Dahir
3. Introduction.
The conflict between Russia and Ukraine will affect
the global economy via three main channels:
financial sanctions, commodities prices and
supply-chain disruptions. The following analysis
presents forecasts for each of these areas and
summarises the latest EIU’s views on the impact
that the war in Ukraine will have on global inflation
and growth.
4. US and EU are imposing tough
sanctions on Russia.
On February 28th the US unveiled a sanctions package
targeting the Central Bank of Russia (CBR). The EU has
followed suit. These sanctions will prevent the CBR from
accessing about half of the US$643bn that it holds in
foreign-exchange reserves by blocking its ability to convert
assets held in US dollars and euros into rubles. The
measure also prevents Russia from tapping its emergency
sovereign wealth fund, the National Wealth Fund (NWF). In
addition, the US and the EU have announced that some
Russian banks will be cut off from SWIFT, the global
payments system.
5. Prices of agricultural commodities
(wheat, maize, barley and rapeseed) will
soar.
Taken together, Ukraine and Russia account for
more than a quarter of the global wheat trade and
produce 12% of calories consumed globally.
Disruptions to trade routes in the Black Sea would
increase pressure on grains prices.
6. Supply chains will be disrupted.
Financial sanctions will have an impact on supply
chains and trade, as companies will struggle to find
financial channels through which to conduct trade with
Russia. In addition, the possible destruction of some
transport infrastructure (notably ports in Ukraine) will
compound existing supply-chain issues.
Disruption to supply chains will come from three
sources: difficulties affecting land-based routes;
restrictions on air links; and the cancellation of sea
freight routes from Ukraine:
7. Land-based trade routes between Asia
and Europe will be disrupted.
As transit through Russia becomes more difficult
(or impossible from a compliance, reputational or
safety perspective). This will particularly affect
some Chinese companies, which had increased
their traffic over land-based routes through Russia
(en route to Europe) as an alternative to sea and
air freight during the coronavirus pandemic.
8. Air ties between Russia and Europe (and,
in turn, Asia and Europe) will be severely
hampered.
following the decision of EU countries to close their
airspace to Russian aircraft and cargo (and
Russia’s reciprocal measure to close its own
airspace to European planes). About 35% of global
freight was being transported by air prior to the
pandemic, about half of which was carried on
passenger planes.
9. Sea freight routes through the Black
Sea will be cancelled.
for several weeks following Ukraine’s decision to
shut down commercial shipping and Turkey’s move
to restrict transit through the Bosphorus. This
situation will have a notable impact on grain
shipments transiting through Ukrainian, Russian,
and possibly Bulgarian and Romanian ports.
10. Global growth will take a hit
The economic impact of the conflict will be felt
mostly in Ukraine and Russia, which will both
experience sharp recessions this year. Those
eastern European countries that are most exposed
to trade with Russia, such as Lithuania and Latvia,
will also take a hit from the conflict. Elsewhere in
Europe, the EU will suffer from an energy, supply-
chain and trade shock.
11. Global growth will take a hit
“In view of this situation, EIU will be revising down
the growth forecast for Europe in 2022, to about
2% from the previous projection of 3.9%. Growth in
the euro zone is now expected to stand at 3.7%
this year, from EIU’s previous forecast of 4%.
Downward revisions to Europe’s growth outlook
will also prompt a revision of the global growth
forecast by 0.5 percentage points to about 3.4%,
from 3.9% previously”.
12. Conclusion
Beyond the borders of Ukraine, the global
economy has been destabilized due to the war,
and economic insecurity has become widespread.
The effects of the war have hit the world as a
second major shock following the COVID-19
pandemic, threatening economic recovery.
