War cannot be considered a positive factor for the economy, at least as long as it lasts. Since russia’s large-scale invasion of Ukraine, the world’s analytical publications have changed their forecasts for global economic growth. According to the IMF, Ukraine’s economy will shrink by 45%, and growth in global economic indicators, which in 2021 reached 6.1%, will fall in 2022 and 2023 to 3.6%. The director of the International Monetary Fund foresees the possibility of a global recession due to the biggest war in Europe in 80 years. In this blog, I will examine how and what the war has affected, and whether it is the only factor that has impacted global growth.
The economic situation in the world has already taken a number of knocks due to the COVID-19 epidemic and related measures. Inflation in the U.S. and the EU has been stronger than expected, and the slowdown in China due to another wave of pandemics and drought has cast doubt on the economic success of the entire region in the near future. The economic damage from the war has directly impacted the economy and reduced the pace of development in 2022 and 2023. Rising fuel and food prices have hit the least solvent segments of the population. According to the IMF report, higher inflation makes it harder for central banks in countries trying to keep prices down and the economy growing. The war has also resulted in the disruption of economic cooperation between the most developed countries and russia, which affects global economic integration.
Overcoming the negative effects on the economy will vary from country to country. It depends on several factors: trade ties, the level of price increases, the availability of energy, and the previous level of inflation. Note that European countries have to support millions of refugees, and this can also be attributed to the effects of the war. This year, Economist predicts that global GDP will lose about $1 trillion, a prediction built on the assumption that widespread fighting will continue through the end of the year.
Among the G20 countries, russia will suffer the most as a result of isolation and sanctions because of the war, and by 2020 its economy will lose about 10%. EU countries will also suffer losses as a result of supply chain disruptions and dependence on russian energy. But for some countries, the forecasts are more optimistic, for example, Saudi Arabia will improve its economic performance due to higher oil prices, as well as entering new markets that will be vacated by russia’s withdrawal from them. Argentina and Brazil, the largest grain producers in North America, will have additional markets this year and their earnings will also rise.
According to a KPMG report, second-quarter 2022 investments are at their lowest level in six quarters. Despite the many opportunities to invest, investors are being more cautious and cautious. In all likelihood, the trend will continue in the next quarter, as investment procedure time and asset verification will increase for some regions amid international sanctions.
Infographics: KPMG (Chart of investments)
Economic development, which has not been optimistic because of the ongoing pandemic and a number of local problems in different parts of the world, has been weakened by the war in the center of Europe. The consequences of this war manifest themselves in numerous economic aspects, from support for the disadvantaged to rising energy market prices. For the countries of Europe in particular, the difficulty of the period in which we have entered is directly related to the prolongation of hostilities.