Home » How will Russia’s invasion of Ukraine hit the global economy?
A conflict that could develop into Europe’s biggest since the second world war has shattered hopes of a strong global economic recovery from coronavirus at least in the short term.
Russia’s invasion of Ukraine on Thursday shook financial markets and the increased geopolitical tensions are set to exacerbate high inflation and supply chain bottlenecks.
The direct impacts of lower trade with Russia, economic sanctions levied on Moscow by the US and EU, and financial contagion are likely to be outweighed by the indirect consequences from the effect on business and consumer confidence and commodity markets, economists said.
These repercussions could range from relatively limited to extremely serious. If energy prices continued to soar, for example, it could easily tip the global economy into a second recession in three years.
Economists said the following issues are the big ones to watch.
How bad does the war get?
Russian president Vladimir Putin’s desired endgame is unclear. Analysts are considering several scenarios that range from a change of government in Kyiv to a Moscow-friendly regime to a wholesale attempt to redraw the international boundaries of Europe and beyond.
Holger Schmieding, chief economist at Berenberg Bank, said the first thing to consider was “how bad does the war get?” — which would determine the likely response in financial and energy markets in the days to come.
The wider global response will be just as crucial, said other economists. Tim Ash, economist at BlueBay Asset Management, singled out China, which has signalled its willingness to help Russia manage the financial fallout from its military actions.
Beijing’s response would be vital in terms of the wider consequences, which could range from the malign — for example, more tension over its own relationship with Taiwan — to more benign diplomatic outcomes.
“Either [China] sees it as an opportunity to go into Taiwan, or as an opportunity to improve relations with the…