Explained | The effects of the Russia-Ukraine conflict on the global economy

The International Monetary Fund (IMF) had stated in March the conflict is a major blow to the global economy that will hurt growth and raise prices.

The ongoing conflict between Russia and Ukraine will reportedly have major ramifications for the global economy, which is just recovering from the stress of the coronavirus pandemic.  

The International Monetary Fund (IMF) had pointed out earlier that both Russia and Ukraine are major commodity producers, and disruptions there have resulted in soaring global prices, especially that of oil and natural gas. With Ukraine and Russia accounting for up to 30% of the global exports for wheat, food prices, too, have jumped. The IMF added that the entire global economy would feel the effects with slower growth and faster inflation.  

The World Bank also said in its Spring 2022 Economic Update for Europe and Central Asia that the conflict delivered a second major shock to the global economy in two years and caused a humanitarian catastrophe. “Even prior to the war, the global recovery had already been decelerating alongside intensifying geopolitical tensions, continued COVID-19 flare-ups, diminishing macroeconomic support, and lingering supply bottlenecks,” it noted. 

The World Bank’s baseline projection assumes Ukraine’s poverty, based on the $5.50 per day threshold rate, will increase from 1.8% in 2021 to 19.8% in 2022. It added that models developed by from the United Nations suggested that a more severe and protracted war could lead to poverty affecting nearly 30% of the population. Quoting estimates from authors of a Centre for Global Development blog, the World Bank said the latest surge in food prices could push an additional 40 million people under the $1.90-per-day poverty line.  

The IMF echoed similar concerns. It said in March that, “Steeper price increases for food and fuel may spur a greater risk of unrest in some regions, from Sub-Saharan Africa and Latin America to the Caucasus and Central Asia, while food insecurity is likely to further increase in parts of Africa and the Middle East.” The conflict disrupted Ukraine’s planting and harvest season, destroyed critical fields, stores, infrastructure and production, especially in eastern Ukraine. Moreover, the conflict has resulted in shipping being halted from the Black Sea, from where about 90% of Ukraine’s grains are exported. 

With respect to the Middle East and North Africa, it had stated that rising prices may lead to social tensions, especially in countries with weaker social safety nets, fewer job opportunities, limited fiscal space and unpopular governments. This extends to Egypt which imports about 80% of its wheat from Russia and Ukraine.  

Further, IMF noted that food pressures in Asia should be eased by local production and greater reliance on rice than wheat. “Costly food and energy imports will boost consumer prices, though subsidies and price caps for fuel, food and fertilizer may ease the immediate impact—but with fiscal costs,” it said.