Economic impact of war in Ukraine

Rising prices for energy and certain raw materials, slowing economic growth, and turmoil in global financial markets are the main economic consequences of Russia’s invasion of Ukraine.

Russia’s invasion of Ukraine on Thursday, February 24, turned the conflict between the two countries into a true war.this isThe result of us Also Economic plan..

Towards higher prices for energy and certain raw materials

Russia, the 11th world power in gross domestic product (GDP) The world’s leading exporter of natural gas.. We also supply petroleum, grains such as wheat and rapeseed, and industrial metals such as nickel and aluminum.In this context, one of the first consequences of the war in Ukraine Rising prices for energy and certain raw materials..

On February 24 alone, natural gas prices rose by more than 25% in the TTF market, which is a platform that is in the Netherlands and is considered a reference in Europe.

Several factors explain these pressures on energy and commodity prices.First, Russia Voluntarily reduce the offer, May impose heavy economic sanctions on him to put pressure on countries, especially Europe. According to the classical market mechanism, demand remains unchanged and the price of goods rises as supply decreases. Meanwhile, in the face of sanctions imposed by the United States and Europe, Russia may find it increasingly isolated By reducing trade participation, other countries will be looking for alternative, and therefore more expensive, energy sources. Finally, the unleashed war in Ukraine can lead to the deterioration of the infrastructure needed to export goods (ports, gas pipelines, oil pipelines, etc.).

Toward a decline in economic activity and purchasing power

In France, as in many countries, the mechanism by which gas and gasoline prices are formed is complex and depends only partially on the prices of natural gas and oil. However, rising prices in international energy and commodity markets should help inflation recover. Last year, we made a comeback in the US and Europe.

This accelerated inflation can have two major consequences.

  • First she should Affect purchasing powerThat is, the ability of households to buy goods and services with their income. If inflation is higher than the increase in household income, purchasing power will decline. This is also a scenario forecast by the National Institute of Statistical Economics (INSEE) in 2022. According to the laboratory’s forecast released last December, France’s household purchasing power is expected to decline 0.2% in 2022.. The “additional” inflation created by the war in Ukraine should exacerbate this phenomenon.
  • Accelerating inflation could boost central banks such as the European Central Bank (ECB) in the euro area and the Federal Reserve System (FED) in the United States. Further tighten monetary policy.. To curb inflation, we have already announced the end of quantitative easing programs implemented at the beginning of the Covid-19 crisis, such as PEPP in Europe, and are raising interest rate futures. The war in Ukraine could accelerate the implementation of these strategies and adversely affect economic activity.

International financial market turmoil

Finally, Russia’s invasion of Ukraine International financial market turmoil.. Most stock markets in the US and Europe have fallen. Not surprisingly, the most affected stocks are the ones most exposed to the Russian market. In France, it is, for example, a banking facility.

On the Paris Stock Exchange, the CAC 40 index fell by nearly 3.8% during the session on Thursday, February 24th.

In recent years, Russia has, as part of it Reduce exposure to the international financial systemIn particular, by significantly reducing the amount of public debt and accumulating foreign exchange reserves. If the United States and European countries completely exclude Russia from the international financial system through sanctions, Russia’s economy could collapse.