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War in Ukraine | The shaken global economy

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Major international economic organizations such as the International Monetary Fund (IMF) and the World Bank warned on Friday of the “wide-ranging consequences” of Russia’s invasion of Ukraine for the global economy.

“The entire global economy will feel the effects through slower growth and trade disruptions. The poorest and most vulnerable populations will be the most affected,” the economic organizations said in a rare joint statement.

Closer to home, in the monthly revision of their economic forecasts, published Friday, the economists of the Mouvement Desjardins immediately note that “the war in Ukraine will have consequences for the growth of the world economy”.

Among other things, “the uncertainty it brings, particularly on the financial markets, the rise in energy and raw material prices it causes, as well as the new constraints it imposes on supply chains are factors that will adversely affect economic conditions”.

Threat of an oil shock

With Russia being one of the world’s largest oil producers and exporters, its warlike invasion of Ukraine has heightened tensions in an already tight global market. The sudden rise in oil prices to over US$100 a barrel sent shock waves through the global economy.

The increase in oil prices is causing, among other things, a considerable jump in gasoline prices, which is undermining household income and exacerbating the inflation problems already present in several economies.

Excerpt from the monthly forecast report of Desjardins economists

“Sharp increases in oil prices have already helped trigger several previous recessions. And if Russian oil were completely shut out of the global market, and unable to be replaced by production increases elsewhere, we could see oil prices rise enough to threaten the global economy with another recession,” warns for his Shares Avery Shenfeld, chief economist at CIBC, in his weekly post, published Friday.


Commodity inflation

Russia is one of the world’s largest producers and exporters of industrial metals such as nickel, aluminum and titanium, as well as minerals such as potash, an ingredient in agricultural fertilizers. Russia and Ukraine are also among the largest producers and exporters of cereals for human consumption, starting with wheat.

“Russian and, to a lesser extent, Ukrainian raw materials are used in the production of several goods and services, particularly in Europe, but also in Asia and America. The agri-food sector is one of the industries that is also likely to be affected, which will accentuate the already observed increase in food costs,” the Desjardins economists point out in their monthly forecasts.

The inflationary effects of the war in Ukraine and the sanctions on Russia will translate into further problems within supply chains, which were already very much present before the invasion.

Excerpt from the monthly forecast report of Desjardins economists

In the opinion of Jean-François Perrault, Senior Vice-President and Chief Economist of Scotiabank, “the conflict [en Ukraine] is the latest in a long list of inflationary shocks to the global economy. “For commodity importers like most industrialized countries and emerging economies, this is even a potential stagflation shock. [inflation élevée et croissance nulle] “Says Mr. Perrault in his weekly economic update. “But for commodity exporters like Canada, higher prices could provide a powerful offset to the trade impacts and economic uncertainties of this conflict. »

Broken down Europe

“It is in Europe that the effects [socio-économiques] of the war in Ukraine will be felt most keenly,” note the Desjardins economists, like their counterparts in most financial institutions and economic organizations.

“Rising oil and gas prices are already very significant and the effect on household wallets and business costs is likely to be major,” they note in their forward-looking update.

And if the situation were to worsen towards a significant reduction in deliveries of Russian oil and natural gas to Europe, “we could easily envisage an economic recession in the euro zone given the current dependence of several countries on these energies, in particular Germany”.

This energy concern in Europe was also strongly expressed in the main stock markets of the euro zone from the first days of the war in Ukraine. Fearing the consequences of this war on the next results of European companies, investors have sharply devalued their shares on the stock market.


US economy slowed down

In the United States, it is the inflationary impact of the war in Ukraine that could accentuate the slowdown in economic growth observed since the start of the year. To the point of encouraging many economic analysts to lower their growth forecasts in the United States in 2022 and for next year.

“We must now take into account the effects of the war in Ukraine on American consumption,” summed up the Desjardins economists in their monthly forecast update. In the United States, consumers account for two-thirds of the national GDP.

“The main backlash is the dizzying rise in gasoline prices, which have reached a new historic high. This increase will monopolize a larger portion of household disposable income and risks forcing them to restrict their discretionary spending other than gas,” point out the Desjardins economists. “Rising prices at the pump are also amplifying an already difficult inflation situation which, in turn, is undermining US consumer confidence. »

As for American companies, “the uncertainty caused by the war in Ukraine could harm their investment intentions”. Especially since in most sectors of industrial and commercial activity, note the economists of Desjardins, “the problems of supply chains [hérités de la pandémie] remain a constraint that could be further complicated by the war in Ukraine”.

Effects limited to Canada

The effects of the war in Ukraine will undoubtedly be limited on the Canadian economy, anticipate the economists of the Mouvement Desjardins. Apart from the “additional upward pressure on prices”, which will be “more noticeable” by consumers and businesses, “the direct effects of the war in Ukraine and the economic sanctions imposed on Russia by most industrialized countries will be quite limited in Canada,” they note in their economic forecast update.

This rather reassuring opinion also seems to be shared by investors on the Canadian stock market. “Since the start of the year, the Canadian S&P/TSX index has been one of the best performing indices in the world, with a return of 2.7%. This outperformance allowed Canadian equities to break their long-term bearish trend against global equities,” said Martin Roberge, North American Markets Analyst at Canaccord Genuity, in his post Weekend Markets.

According to Desjardins economists, “the lifting of most health measures is favoring the recovery in certain sectors of activity”, and the labor market which “is doing very well with an unemployment rate very close to its historic low” could have a “positive effect on consumer confidence” in order to offset “the negative repercussions of accelerating inflation”.

Furthermore, they note, “the Canadian economy should benefit from the strong demand for raw materials resulting from the sanctions imposed on Russia”. Among other things, “the significant increase in oil and gas prices will have a positive wealth effect in Alberta and Saskatchewan”, not to mention the increase in the prices of potash and several cereals which could benefit the economy of the provinces. of the prairies.



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