As the war in Ukraine heads toward the expansion of conflict, certain outlooks have emerged.
Recent market volatility confirms investor drift and a lack of past benchmarks. When the market soars, is it rather the Lehman Brothers crisis? Or does it reflect the September 11th attack that weighed on global security? Is it as important as the construction of the Berlin Wall, or is it like the Bolshevik Revolution? And what are the implications of the restrictions on our relationship with the world’s 11th economy?
The strong economic recovery after a two-year pandemic now seems questionable. Predictions that inflation will decline as supply chains return to normal are also off the table.
The main concern is that the conflict in Ukraine will spread to neighboring countries and Russian troops will fight NATO. But even if this terrifying possibility is considered, certain economic factors have already emerged.
Initially, financial authorities will probably be cautious given market volatility and political uncertainty.
What was already a difficult year for financial authorities around the world is further complicated by the need to find the right balance between rising inflationary pressures and the need to support growth. Initially, it can be cautious given market volatility and political uncertainty. Commodity shocks will also undermine consumer demand and growth. However, inflation is persistent and theoretical textbooks do not help determine the most appropriate financial parameters during the period of stagflation.
The government needs to consider subsidies to absorb the rise in fuel and food prices. This spending will be added to Europe’s commitment to increase military power, accelerate climate change and reduce Russia’s reliance on fossil fuels. All of this heats up following COVID spending, with public debt hitting record highs.
The economic adjustment mechanism that helped manage the recovery from the 2008 global financial crisis appears to face existential challenges as the division between core members grows. Given the fruitless conversations with Russia, China and even India at the G20, the United States, Europe and Japan may be far more useful to unite in the G7’s inner circle.
Not all future market losses are necessarily related to Russia. The 1998 Russian financial crisis, along with tensions in other Asian markets, led to the collapse of Long-Term Capital Management, a US hedge fund, almost reducing some of the world’s most acclaimed banks. This shock is very different, but it still has an impact, as unexpected losses cause damage due to unexpected exposure. Headlines about Chinese nickel producers on the verge of bankruptcy with a $ 1 billion margin claim on the London Metal Exchange are no last surprise.
After imposing unprecedented economic trauma on Russia, US and European currencies look stronger than ever.
Russia will not be considered a reliable supplier of oil and gas for a long time. Europe may not be able to phase out Russia’s energy as quickly as the United States, but the invasion of Moscow will accelerate diversification from other suppliers and a global shift to renewable alternatives. Probably. In an already tight energy market, this means higher prices than expected a month ago.
Russia and Ukraine usually export one-third of the world’s wheat, but neither this year nor next year. Ukraine’s current exports could not reach its port and next year’s crops need to be planted quickly, which has pushed prices up by more than 40%. Russia’s fertilizer export ban will reduce cross-border yields. Rising food prices will put more pressure on Western prices, but rising prices and the threat of actual shortages will cause riots in countries such as Egypt, Tunisia and Lebanon.
After imposing unprecedented economic trauma on Russia, US and European currencies look stronger than ever. Some central banks may choose to diversify into gold or yuan, but this strategy does little to save Russia from its catastrophic costs. Most of what is bought and sold in the world is still built in dollars and euros, and currencies that cannot be exchanged between these two currencies are useless. A quick look at Bitcoin development confirms that most crypto alternatives are not viable options either.
Some of these forecasts are bold and could at least serve as support until the major issues of prolonged financial shocks, supply line collapses and rising global unrest are resolved.