Ukrainian War: “The world economy will not be easily restored”

Grandstand

Nothing could have been worsened after a two-year pandemic, a historic surge in public debt, and a “money print” that led to an unknown inflation surge since the early 1980s. The outbreak of war in Europe between Russia and Ukraine. .. Only a few days ago, all “prominent geopoliticians” and other “fortune-tellers” claimed that Russia would never attack Ukraine. When “epidemiologists” and other “experts” claimed that Covid-19 was just “flu” in March 2020, or salon economists and central bankers have recently seen moderate and temporary inflation. It’s a bit like when I claimed to be a thing … sadly, history repeats …

In other words, not only is the nightmare not over yet, it is also intensifying. Indeed, without knowing how far this dispute will go, and of course not expecting it to be resolved as soon as possible, its economic and financial implications are already dramatic. And this is for both the Russian and Ukrainian economies and global growth, or even in France and Europe, not forgetting the stock markets that have already begun to fall sharply.

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The numbers speak for themselves. In a week, despite a slight modified rebound on February 24th, the Standard & Poor’s 500 fell 4.1% and collapsed after January 5, 2022. For CAC 40, these same period changes were -6.4% and -11.6%, respectively. At the forefront of the stock market bubble in recent years, so-called growth stocks are clearly suffering even more. Therefore, Nasdaq collapsed 7.8% in a week and 18.8% from November 2021.

Beyond the deflation of the bubble in the past, these developments are the fact that the conflict between Russia and Ukraine has a sharp decline in global growth, or a seed of recession, especially associated with soaring prices. Is simply reflected.

Again, the numbers are not eloquent. Therefore, the barrel of oil reached $ 105 in Brent, the highest since August 2014. Even as global growth reduces our dependence on oil, we must not forget a sustained rise. A $ 10 barrel removes about 0.4 points from the annual progress of global GDP. The barrel has risen $ 90 since April 2020, so that’s waiting for us.

And this is especially because gas prices have exploded in both the United States and Europe. Wheat prices also rose 95% from June 2020 and returned to their peak in July 2012. Taken together, the CRB index rose 2.7% in a week, up 148.6% from its April 2020 bottom. In this context, already at very high levels, inflation continues to tighten, thereby weakening household purchasing power and thus consumption, as well as overall growth and employment.

Moreover, it is clear that Russia’s oil, gas and wheat embargo will exacerbate tensions on prices for these raw materials, intensify global inflation and continue a vicious cycle. After a two-year pandemic, it is clear that the global economy cannot easily recover, especially as all fiscal and financial stimulus cartridges are already in use around the world.

Indeed, the risks posed by the conflict have mechanically reduced the potential for sharp tightening of monetary policy. It caused the worst fear a while back. But as long as the main interest rate is already 0% and the “money press” is already overused, the central bank can no longer restart the machine.

More seriously, in the face of rising inflation, issuers will not be able to buy as much public debt as ever, even if the latter is primarily due to soaring commodity prices. In this regard, it is also useful to note that interest rates on government bonds have fallen only slightly, confirming that the new stage of “whatever the cost” is no longer possible. Therefore, past excess invoices, whether in war or not, must be paid in 2022.

And for those who thought cryptocurrencies could be a good and secure haven in the face of all sorts of crises, the price plunge is back to set a record. Again, some numbers are more valuable than long speeches. In five days, Bitcoin prices have fallen by more than 16%, almost 50%, in three months.

Finally, as general wisdom says: there is nothing new in the sun. Crisis and war are part of human nature, trees do not rise to the sky, bubbles burst, and excesses must be paid. And to conclude, the only safe haven that has survived for centuries remains gold, whose price has recently again approached $ 2,000 per ounce.

In conclusion, and as I wrote at the beginning of the pandemic and the recession it caused, the crisis is part of economic life and is often a stage of opportunity. So don’t panic, but on the contrary, bend over and wait. Hoping that World War III won’t happen, otherwise stock prices will be our least worried. So believe in humans. It would still be unbelievable, especially if the leaders of the Earth decide to destroy half of humanity after blocking the world for almost two years, especially to avoid the premature death of people over the age of 80 … More than: Hope gives life!

>> To read again-is there a shortage of sunflower oil exported by Ukraine in large quantities in France?

Mark Tuati, Economist, President of ACDEFI

His new book RESET-What is the new world for tomorrow? Has surpassed best-selling budget essays since its release on September 2, 2020

He also has his video chronicle Youtube channelThe last, the war in Ukraine: what are the economic and financial implications?