INDIA: The most serious effect of the Russia-Ukraine war for the world economy will be higher commodity prices. Oil prices will remain above US$ 100 per barrel for as long as the conflict rages on, EIU said in its global outlook report.
The threat of sanctions on Russian hydrocarbon exports and uncertainty surrounding supplies will exacerbate existing market tightness. European gas prices will rise by 65 per cent this year, after a fivefold rise last year. Europe has limited gas stockpiles, and there are concerns about gas supplies for the 2022/23 northern hemisphere winter season. Europe is reducing its demand for Russian gas, which will lower Russian output and put further pressure on supplies, Agathe Demarais, Global Forecasting Director, EIU, said.
“We expect higher commodity prices to fuel global inflation, which will spike to 7.7 per cent this year, a 26-year high,” EIU said.
Despite concerns about the impact of the Russia-Ukraine conflict on their economies, the major central banks are doubling down on their efforts to control inflation. We forecast that the Federal Reserve (Fed, the US Central Bank) will now raise rates by 225 basis points in 2022 and also commence balance-sheet run-off. The European Central Bank will now discontinue its quantitative easing programme at the end of June 2022, the report said.
Ukraine and Russia together account for more than a quarter of global wheat trade and produce 12 per cent of calories consumed globally.
The conflict between Russia and Ukraine is affecting the global economy via financial sanctions, higher commodity prices and supply-chain disruptions. These transmission channels are collaboratively causing inflation to spike and growth to slow sharply, especially in Europe. This situation will play out over the rest of the year, as we expect the war to last until the end of 2022 at least, EIU said.