Major international economic organizations such as the International Monetary Fund (IMF) and the World Bank warned on Friday of the “widespread consequences” of the Russian invasion of Ukraine on the global economy.
Posted at 7:00 am.
“The entire global economy will feel the effects of slower growth and trade disruptions. The poorest and most vulnerable populations will be hit hardest,” economic organizations said in a rare joint statement.
Closer to home, in a monthly revision of their economic forecasts released on Friday, the economists of the Desjardins Movement are quick to note that “the war in Ukraine will have consequences for the growth of the global economy.”
Among other things, “the uncertainty it brings, especially to financial markets, the resulting rise in energy and raw material prices, and the new restrictions it imposes on supply chains are factors that will negatively impact economic conditions.”
Threat of an oil shock
As Russia is one of the world’s largest oil producers and exporters, its militant invasion of Ukraine has added tension to an already taut global market. The sudden rise in oil prices to over $100 a barrel sent a shock to the global economy.
Rising oil prices are causing, among other things, a large jump in the price of gasoline, lowering household incomes and exacerbating inflationary problems that already exist in a number of countries.
Excerpt from Desjardins Economists’ Monthly Outlook Report
“The surge in oil prices has already helped trigger several previous recessions. And if Russian oil were completely excluded from the world market and could not be replaced by increased production elsewhere, we could see oil prices rise enough to threaten the global economy with another recession,” warns Avery Schoenfeld, chief economist at CIBC in his weekly post published on Friday.
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 potassium, which is part of 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 a number of goods and services, especially in Europe, but also in Asia and America. The agri-food sector is one of the industries that could also be affected, exacerbating the already observed increase in food prices,” Desjardins economists note in their monthly forecasts.
The inflationary consequences of the war in Ukraine and sanctions against Russia will lead to further problems in supply chains that already existed before the invasion.
Excerpt from Desjardins Economists’ Monthly Outlook Report
According to Jean-Francois Perrault, senior vice president and chief economist at Scotiabank, “the conflict [en Ukraine] is the latest in a long list of inflationary shocks to the global economy. “For commodity importers, such as most industrialized and emerging economies, this is even a potential stagflation shock. [inflation élevée et croissance nulle] “Mr. Perrault says in his weekly economic report. “But for commodity exporters like Canada, higher prices could be a powerful offset to the trade impact and economic uncertainty of this conflict. »
“It is in Europe that the consequences [socio-économiques] wars in Ukraine will be felt most acutely,” Desjardins economists say, as do their counterparts in most financial institutions and economic organizations.
“The increase in oil and gas prices is already very significant, and its impact on household wallets and business spending is likely to be significant,” they note in their outlook report.
And if the situation worsened in the direction of a significant reduction in the supply of Russian oil and natural gas to Europe, “we could easily foresee an economic downturn in the eurozone, given the current dependence on these energy resources of a number of countries, in particular Germany.”
This energy concern in Europe has also been strongly expressed in the main stock markets of the Eurozone since the early days of the war in Ukraine. Fearing the consequences of this war for the next results of European companies, investors sharply depreciated their shares on the stock market.
The US economy has slowed down
In the United States, it is the inflationary impact of the war in Ukraine that could exacerbate the economic slowdown seen since the beginning of the year. To the point that many economic analysts have lowered their growth forecasts for the US in 2022 and next year.
“Now we have to factor in the impact of the war in Ukraine on American consumption,” Desjardins economists concluded in their monthly forecast update. In the United States, consumers make up two-thirds of the nation’s GDP.
“The main negative reaction is the dizzying increase in gasoline prices, which have reached a new historical high. This increase monopolizes much of households’ disposable income and risks forcing them to limit their discretionary spending other than gas,” Desjardins economists note. “Rising gas station prices are also exacerbating an already difficult inflationary environment, which in turn is hurting consumer confidence in the US. »
As for American companies, “the uncertainty caused by the war in Ukraine could harm their investment intentions.” Moreover, in most industries and commercial activities, economists Desjardins note, “supply chain problems [hérités de la pandémie] remain a limitation that could be further complicated by the war in Ukraine.”
Effects limited to Canada
The effects of the war in Ukraine will no doubt be limited to the Canadian economy, Desjardins Group economists predict. Apart from “additional upward pressure on prices” that will be “more visible” to consumers and businesses, “the direct impact of the war in Ukraine and the economic sanctions imposed on Russia by most industrialized countries will be very limited in Canada,” they note in its update of the economic outlook.
It seems that this rather encouraging opinion is also shared by investors in the Canadian stock market. “Since the beginning of the year, the Canadian S&P/TSX index has been among the best performing indices in the world with a yield of 2.7%. This dominance allowed Canadian equities to break their long-term bearish trend against global equities,” Martin Roberge, North American markets analyst at Canaccord Genuity, said in a Weekend Markets post.
Desjardins economists said that “the removal of most health measures is helping to rebound in certain sectors of activity” and a labor market that is “very well and the unemployment rate is very close to its historical low” could have a “positive effect”. on consumer confidence” to offset the “negative effects of accelerating inflation”.
In addition, they note, “the Canadian economy should benefit from strong demand for raw materials as a result of sanctions imposed against Russia.” Among other things, “a significant increase in oil and gas prices will have a positive impact on welfare in Alberta and Saskatchewan,” not to mention higher prices for potash and some cereals, which could benefit the provincial economy. .