The conflict in Ukraine could reduce the value of the world economy by US$1 trillion and increase global inflation by 3% this year by causing another crisis in supply chains, according to the National Institute of Economic and Social Research (NIESR). its acronym in English) of the United Kingdom.
Supply problems will slow growth and push up prices, lowering the level of global gross domestic product (GDP) by around 1 percentage point by 2023, the London-based watchdog said. Europe’s links with Russia and Ukrainewhich are important sources of basic products and energy, leave it more exposed than any other region.
The war will also force European governments to incur more debt to pay for the influx of immigrants and strengthen their armies, added the NIESR. He urged central banks to raise interest rates “only slowly as they assess the impact on confidence and activity of the war and its crisis, through energy, on real incomes.”
“The conflict in Ukraine places further economic strain on a system under strain from COVID“, said Jagjit Chadhahdirector of NIESR. “Supply chains will be further fractured and monetary and fiscal policies will come under severe scrutiny.”
Russia will avoid a recession because the economic impact of the sanctions will be seen “partially offset by higher prices for oil and gas exports”. However, GDP by the end of 2023 will be 2.6% lower than previously forecast, and the collapse of the ruble will push inflation up to 20%.
The impact on Russian GDP is only marginally larger than in the eurozone and the United Kingdom, which will end 2023 with GDP levels approximately 1.5% below previous projections, according to the entity. As growth slows, the cost-of-living crisis will intensify, the NIESR warned. UK inflation will average 7% this year and could drop to 4.4% in 2023.
If sanctions were stepped up to cut off Russian oil and natural gas shipments, the impact for Russia would “serious”, but would also increase “the chances of a recession accompanying significantly stronger inflation” in the EU. The bloc buys 40% of its gas from Russia.
Source: Gestion
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