The Global Economy is facing increasing pressures. Whilst, two British fighters captured in Ukraine have been sentenced to death: the BBC is warning of a possible cholera outbreak in Mariupol and the fighting continues in the Donbas.
No doubt by the time you read the article the headlines will be different – but no less depressing. What now seems to be undeniably true – and accepted by all the military analysts – is that the war in Ukraine will not be over quickly. Russia invaded Ukraine on February 24th. Vladimir Putin expected the invasion to take 100 hours. We are already well past 100 days with many people feeling it could last into next year.
A simple question stems from that: how much damage will the war do to the global economy?
Last month, the National Institute for Economic and Social Research (NIESR) estimated that the war will ‘wipe $1.5tn (£1.2tn) off the global economy’ as energy costs soar and there are worries about food supplies. To put that in some sort of perspective, the International Monetary Fund currently puts the cost of the pandemic at $12.5tn (£10tn) – so on those figures, the war has to date cost the global economy roughly 12% of what the pandemic cost.
The problem is, of course, that the longer the war goes the more the direct cost will be. The GDP of Ukraine was put at $66bn (£52bn) before the war and Russia’s was estimated at $1.78tn (£1.43tn). In addition, there will be an increasing indirect cost as nations run short of food and businesses fail to cope with rising energy prices. One report suggested that as many as 40,000 businesses were in danger of collapse in Karachi, Pakistan’s commercial capital, as energy prices continued to climb.
Unsurprisingly, given all the above, the World Bank has warned of the very real possibility of a global recession. World Bank head David Malpass told an audience in the US that it was ‘difficult to see how we can avoid a recession’. Even without the war, he said, ‘the idea of energy prices doubling is enough to trigger a recession by itself’.
And that is the problem with Russia’s invasion of Ukraine. As the pandemic came to an end – and as the world started to recover – the Russian tanks rolled across the border. The world lurched from one crisis to another.
The real answer to the question in the title is, of course, we don’t know. While there will undoubtedly be plenty more twists and turns ahead. If, however, you have any questions at all on how the war might impact your savings and investments then, as all our clients know, we are never more than a phone call or an email away.
