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Executive Summary
The main highlight in the month of February was the steep military escalation seen between Ukraine and Russia which has now led to a full-scale invasion. Global markets and economies have already rattled with commodity prices such as oil hitting the roof amidst already rising inflation seen in many parts of the world.
How has the Ukraine-Russia conflict rattled the global economy?
Russia’s invasion of Ukraine has not just raised question in the international political arena but also in terms of the global economic outlook for 2022. Despite the new Omicron variant, China’s slowdown, supply chain issues and numerous other constraints the global economy continues to see robust levels of growth, however will recent events in Ukraine reverse this?
Growth outlook for Asian economies turns even more volatile: Asian economies especially Japan and South Korea which are very much reliant on Russian crude oil, gas and metals would get severally impacted if Russia retaliates to Western sanctions by cutting supplies. Major Asian economies that import from Russia would face not just price rises but also possible shortages. This is just after they recovered from pandemic-related supply chain disruptions and the cost of commodities surging over the last two years.
Europe greatly concerned as energy markets roil: Russia provides a third of Europe’s supply of natural gas and about 10% of the world’s oil with some major pipelines running through Ukraine. This has led to great uncertainty in the global oil market resulting in the price of oil soaring to USD 100 a barrel on fears that a full-scale invasion would interrupt Russian natural gas and oil shipments to parts of Europe and the world, increasing inflationary price pressure which has already been at record highs in the past few months.
US sanctions may not target oil: Russia's enormous energy industry is a powerful target for US sanctions similar to those imposed on Iran. Despite the recent spike in oil prices US officials have stated that sanctions will not target Russian crude oil due to worries about inflation and the harm it may bring to its European allies, global oil markets, and U.S. consumers.
Russia trade flow likely to divert to China if US imposes tough sanctions: If Russia intensifies the crisis in Ukraine, the US may impose a slew of new sanctions, including depriving key Russian financial institutions and enterprises access to US currency transactions and global markets for trade, energy exports, and finance. This however may prompt Russia to try to further its non-dollar denominated trade ties with China in an effort to bypass the restrictions according to a World Bank official.
Has global trade finally recovered since the pandemic?
After a slump in 2020 global trade saw significant recovery in 2021 despite varied supply chain constraints, rising freight costs and production bottle necks. The path of global trade however for 2022 remains uncertain with the recent events in Ukraine.
Global trade hits a record high in 2021: According to UNCTAD's Global Trade Update, global trade in goods remained robust in 2021, while trade in services finally recovered to pre-COVID-19 levels. In 2021, the value of global trade hit a new high of $28.5 trillion. This is a 25% increase over 2020 and a 13% increase over 2019, when the COVID-19 pandemic began.
Semiconductors and chip shortages still persist: A recent report published by the US Commerce Department predicts that the global chip shortage would extend far into 2022, and maybe even 2023. Therefore, resulting in a longer felt burden on a wide range of U.S.-based businesses including electronics (cameras, computers, phones) and automakers.
Shipping industry poises for Russia-Ukraine impact: Apart from a likely increase in freight costs due to oil prices soaring as a result of the conflict, military action could curtail ship movements in the Black Sea, a key transit point for dry bulk exports with a possibility of Russia also carrying out cyber-attacks to block key shipping lines.
How have commodities been performing?
Oil prices hit USD 100 a barrel:
While oil prices saw a sharp increase throughout February starting from roughly US$ 89 per barrel at the beginning of the month, prices spiked further when escalations between Russia and Ukraine intensified after Russian president Vladimir Putin ordered troops into eastern Ukraine, leading to oil prices hitting US$100 a barrel on the 24th of February for the first time since 2014.
Gold prices highest in over a year:
Gold prices saw a steep rise this month starting from roughly US$1795 an ounce to then hit a peak of US$1943 an ounce on the 24th of February. As a result of Russia's invasion of Ukraine, gold is trading at its highest levels in almost a year, with inflation running high and commodities volatile.
Top 5
As sanctions start, Russia's trade flow shifting towards China
New sanctions could prompt Russia to try to deepen its non-dollar denominated trade ties with Beijing in an effort to skirt the restrictions, said Harry Broadman, a former U.S. trade negotiator and World Bank official with China and Russia experience.
Asian emerging market central banks may not chase Fed in raising rates: Report
Economists from Bank of America think that the Federal Reserve’s counterparts in the Asian emerging markets are in no hurry to chase the US central bank in its sharp turn to a hawkish stance, according to a CNBC report.
How fuel and food inflation will bleed global economy if Russia invades Ukraine
After getting battered by the pandemic, supply chain chokeholds and leaps in prices, the global economy is poised to be sent on yet another unpredictable course by an armed clash on Europe’s border. An outright attack by Russian troops could cause dizzying spikes in energy and food prices, fuel inflation fears and spook investors, a combination that threatens investment and growth in economies around the world.
The global economy disrupted: Higher inflation and slower growth in the 2022 outlook
According to IHS Markit the global economic expansion will continue at a moderating pace in 2022 and 2023 alongside a transition from COVID-19 pandemic to endemic. With supply disruptions continuing, inflation will remain elevated in the months ahead, leading to monetary policy tightening. As demand growth cools and supply chain problems are gradually resolved, inflation will subside.
US inflation hits highest level in 40 years in January as prices rise 7.5% from 2021
Inflation in the US climbed to its highest level in 40 years in January, with prices rising by 7.5% from a year ago, the Bureau of Labor Statistics reported on Thursday. The rise in the consumer price index (CPI) survey – which measures the costs of a wide variety of goods – was the largest since February 1982.
Compiled by: Emaad Rizwan
Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.
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