Antonio Castro September 25, 2023
The Six Day War, the Middle East Conflict, the Gulf War and the Iraq War. The common denominator with that conflict published last February by Russia with “the extraordinary operation” in Ukraine is – in addition to the dramatic mass exodus – represented by theeconomic impact. Which will certainly have an impact in the coming years.
Already the title of the report by Swiss National Bank (SNB) is all a (negative) program: “The effects of the Russian invasion of Ukraine on European states”. The study, carried out at the end of August and republished by the international news agency Portal, summarizes the negative macroeconomic effects of the conflict. All mixed with a rise in prices that multiplied the impact. Not to forget that in February 2022, the global economy was just beginning to take off after the Covid tsunami.
The warning – from the professor Jonas Bruhin with the support of the two analysts Rolf Scheufele and Yannic Stucki – is that “even worse effects must occur”. “Since Russia invaded Ukraine, Europe has suffered from rising energy prices, turmoil in financial markets and a sharp decline in the economies of Russia and Ukraine.”
Perhaps, after almost 600 days of conflict, there are those who have eliminated the gas price spikes. On February 23, 2022, on the eve of the invasion, the gas price closed at €87.5/MWh. During the meeting on March 7th, it even rose to the unimaginable record of 345 euros. As if the domino effect on the energy market was not enough (over 40% of gas supplies to Western European countries came from the Russian steppes via Nord Stream gas pipelines), agricultural and food supplies from Ukraine and Russia also plummeted. And so another economic conflict was grafted onto trench warfare. The Wheat War.
Granaries under attack – Ukraine has been the breadbasket of Europe since Tsarist times. During the times of the USSR, the huge areas cultivated with durum wheat, sunflower seeds and various types of grain represented the food treasure of the entire Soviet bloc. The stop in deliveries, the endless negotiations about the recommissioning of the ships loaded with wheat from the Ukrainian ports and the attacks on the reserve silos form the basis for a conflict that impacts financial markets that trade in raw materials. At the end of July 2023, the price of common wheat had risen by 5.66% and that of durum wheat by 4.1%. And the export blockade imposed by Moscow, which was agreed last year with the interested mediation of Turkey, is certainly not helping to cool down prices. On the other hand. According to estimates by the US Department of Agriculture, over the next two years, Kiev will see its market share halve compared to pre-war levels, from 10% in 2021 to 7% in 2023 and 5% in 2024. Moscow, on the other hand, will continue to rise by more than 20% .
If Russia had not invaded Ukraine – according to analysts at the Swiss bank – Germany, Great Britain, France, Italy and Switzerland could have expected growth of “between 0.1% and 0.7% in the fourth quarter” in 2022. of the year. Just as “consumer prices would have been between 0.2% and 0.4% lower in each of the countries.” Today we realize how much the rising cost of living is putting a strain on wages and purchasing power. But that’s not all: the negative consequences of the war are likely to be far more serious in the medium to long term, especially when it comes to the real economy.” And according to BNS forecasts, “it is likely that in a year or two” the economic slowdown will become even more significant could. The estimates “trend downward because they likely underestimated the impact of inflation on nutrition.” And also because “oil prices instead of gas prices” were taken into account. What is neglected, however, is “the impact of refugees and the increase in military spending,” which could be greater than “recent conflicts.”