Ukraine’s war: rising food prices are not the only global economic downturn

As the war in enters its fourth month, its economic consequences become more apparent and begin to rise global political agendas. And just as Russia’s aggression has had political consequences far beyond Ukraine, so have the economic repercussions. This is not to diminish the economic and infrastructural devastation of Ukraine, which will require a huge reconstruction effort, but to highlight the far-reaching effects of the war and how it is exacerbated by global economic dynamics associated with it.

Some predictions predict that Ukraine’s GDP 2022 will shrink by 30% and 45%. Although an end to the war would reverse this negative trend, extensive damage to Ukraine’s infrastructure – calculated close to £ 80 billion in early May – will slow the country’s recovery, no matter how good and by whom it will be financed.

Similarly, a ceasefire or peace agreement could stop from emigrating from their homeland, but a rapid return of currently more than 6 million refugees and about 8 million internally displaced persons will take time. Among those who return, many of them will not find their homes or jobs or any operational public service. Add this high damage prices that Ukraine suffers in the war and trauma added to the population at large, and it becomes clear that the country will also be depleted of significant human capacity needed for economic recovery.

Beyond Ukraine, the war has already led gloomy predictions about a slowdown in the global economy, and possibly a recession. This is mainly driven by surge in the price of oil and gas and instability in international markets since the beginning of the war and the lack of certainty about how and when it will end.

An extensive food

The second global economic downturn from the war in Ukraine is large food crisis affects many of the world’s most vulnerable populations. Ukraine is a major exporter of agricultural products, especially sunflower oil and wheat, but important export routes, through the country’s ports in the , are now blocked due to a de facto Russian marine blockade.

In addition, there have been reports that Russia, which is itself a major exporter of wheat, has done so stolen about 400,000 tons of grain from storage facilities in Ukraine. But it is not only the current shortage of Ukrainian agricultural products that is contributing to the impending global food crisis, it is also a market expectation that this will continue, with the forthcoming harvest in Ukraine greatly reduced. This drives up the prices of cereals and cooking oil, makes imports less affordable in poorer countries and, together with rising energy prices, contributes to a cost of living crisis even in rich economies, which is further increasing probability of a global recession.

The possibility of a protracted global recession rather than the expected rapid post-pandemic recovery will have further repercussions on global political stability. Of course, this is not entirely due to the war in Ukraine, but the consequences of the war have a potentially catalytic and aggravating effect on existing economic and political problems.

Read more: Ukraine’s summary: why Turkey wants to block Sweden and Finland from joining NATO

Among them, Western economic sanctions against Russia, and secondary sanctions against companies and countries that circumvent these sanctions, will help to decouple large economies and reduce the current level of globalization, leading to some long-term structural change in the global economy.

This is obvious in the forthcoming EU ban on oil imports from Russia and efforts to stop uses Russian . At the same time, a large – and growing – number of Western companies leaves the Russian market.

Future relations between the United States and

Likewise, if not more importantly, the war in Ukraine will also accelerate decoupling of the Chinese and American economies. One of the lessons China is learning from the Western response to the war in Ukraine is the relative ease with which almost half of Russia’s 630 billion USD (500 billion pounds) in foreign exchange and gold reserves freeze through sanctions from the United States, the and their allies. In the future, China will be more cautious about having dollar reserves abroad that could potentially be seized in this type of maneuver.

This changed relationship would have an even more significant impact, which further increases an existing trend where geoeconomic and geopolitical developments become more and more adapted and pose the United States and China in a new global struggle for supremacy.

How quickly this trend of decoupling between the United States and China will continue, and whether it can be reversed, will depend, among other things, on how – and how quickly – the war in Ukraine ends. The longer the war lasts and the less likely a negotiated outcome is, the more economic divisions will align with political ones and the more deeply divided the new European and global security order will eventually become.

It will be crucial in this context how China will act and whether it will prioritize its economic interests (continued trade with Europe and the United States) or current ideological preferences (an alliance with Russia that makes the world safe from autocracies). If China succeeds in creating a solid alliance with , Russia, and South Africa, known as the Brics countries, which imagined by the Chinese , Wang Yi, a new world order will have emerged.

Author: Stefan Wolff – Professor of International Security, University of Birmingham | Tatyana Malyarenko – Professor of International Relations, National University Odesa Law Academy The conversation


Related Posts