Moody’s analysts warned about the consequences for the global economy from the conflict in Ukraine

Russia’s special military operation in Ukraine and the subsequent sanctions against the Russian Federation by the United States, European countries and other states have led to serious risks for the prospects for the global economy, analysts at the international rating agency Moody’s warn.

According to experts, the conflict between Moscow and Kyiv not only affects the economic activity of the two countries, but may also jeopardize the recovery RBC.

Moody’s notes that Russia’s share in world GDP, calculated at purchasing power parity, is 3%, Ukraine – less. However, analysts expect that what is happening will have negative side effects for the rest of the world, in particular, due to the consequences of tough sanctions against the Russian Federation for the financial market or in the event of a possible expansion of the conflict.

The agency points out that since the outbreak of hostilities, commodity prices have risen sharply: the cost of a barrel of oil has jumped above $100, and if prices remain at this level, this threatens to further accelerate inflation. Possible Russian retaliation against sanctions could also cause further energy price hikes, especially in Europe, Moody’s notes.

In addition, the prices of agricultural commodities are skyrocketing. Russia and Ukraine account for about 25% of world wheat exports. Since the outbreak of hostilities, grain prices have risen sharply, but due to the fact that events unfold in winter and not during the harvest season, the impact on supplies has not been so serious.

Rising prices for corn will lead to higher costs for animal feed, and subsequently for meat, experts do not exclude. Soybeans are also getting more expensive, Russia is their leading producer. The cost of fertilizers may also rise.

“The resulting rise in food prices will further reduce the purchasing power of consumers. (…) Rising food inflation, along with rising other prices, could also exacerbate social tensions in some countries,” warns Moody’s.

Moreover, the review emphasizes, Russia is a major producer of metals, including aluminum, platinum, copper and palladium. Their shortage is likely to drive up prices in the automotive industry, which has already suffered from a shortage of semiconductors.

In addition, the agency recalls, Ukraine and Russia are major exporters of neon, an inert gas needed for the production of semiconductors. So, according to Rosstat, in 2020 Russia produced 175.5 million cubic meters of “other inert gases”, exported inert gases worth $74 million.

At the same time, the British National Institute for Economic and Social Research (NIESR) admits that due to the Russian-Ukrainian conflict, the volume of the world economy may decline by 1%, that is, by $1 trillion by 2023. Earlier, the institute warned of possible problems with the supply chains of metals, including titanium and palladium, and agricultural commodities.

Recall that on February 21, 2022, Russian President Vladimir Putin signed decrees recognizing the independence of the self-proclaimed Donetsk and Luhansk People’s Republics (DPR and LPR), and on February 24 he made an emergency appeal to the Russians and announced a special military operation in Donbass. In his speech, he stated that “circumstances require decisive action from Russia” and stressed that “Russia will not allow Ukraine to have nuclear weapons.”

In response to Russia’s actions, Western countries (USA, Canada, European Union, Great Britain, Japan) announced new, tougher sanctions against the Russian Federation, including financial and economic ones.

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