The war in Ukraine has worsened global growth prospects for the coming quarters and has hit world exports.

The war itself and the international community’s response with harsh economic sanctions against Russia have increased uncertainty, tightened financing conditions, exacerbated bottlenecks and pushed up energy and food prices (thereby eroding the purchasing power of households and increasing production costs for businesses).

For the Bank of Spain, these effects tend to be greater in a geographical area, such as Europe, which depends to a greater extent on Ukraine and, above all, on Russia, for the supply of some raw materials.

In general, according to this bank, the change in the relative price of exports and imports (the terms of trade) derived from higher prices of raw materials will affect the economic activity of countries that are net importers and will benefit exporters. in particular emerging market economies that are not net importers and are highly integrated into global value chains, such as those in Latin America.

The Russian invasion of Ukraine at the end of February 2022 was another negative impact in an environment where many economies, sectors, companies and households had not yet fully recovered from the adverse effects of the health crisis.

As a result, the near-term growth outlook has been revised down, particularly in Europe, while inflationary pressures have increased and are expected to be more persistent than anticipated earlier in the year.

Exports

Supply chain disruptions, a spike in inflation and, in 2022, the war in Ukraine have hampered the global economic recovery that followed the most acute phase of the pandemic.

In the last two years, events at various levels with an impact on global economic activity have successively developed at an accelerated pace.

Movement and contact restrictions, introduced to contain the pandemic, led to a sharp decline in activity in the spring of 2020 unprecedented in recent history.

The gradual lifting of these measures allowed a progressive recovery to begin in the summer of that year, which, however, was hampered throughout 2021 by a series of factors.

These include the increase in the price of numerous commodities (mainly energy commodities) and the appearance of interruptions in global supply chains (bottlenecks), which have fueled a sustained and pronounced rise in inflationary pressures.

Russian aggression against Ukraine in February 2022 has clouded the economic outlook and exacerbated price pressures in an environment marked by unusually high levels of uncertainty.

War in Ukraine

The invasion is a shock of great proportions, with adverse consequences in terms of lower economic growth and higher inflationary pressures.

The most relevant channel is probably the one related to the importance of Russia and Ukraine as world producers of raw materials.

Europe‘s dependence on some of these basic products, such as gas, is very high. And although Spain is less dependent on them, it cannot escape rising prices in global markets.

In addition, the war has raised the possibility of gas supply disruptions, making it difficult to find alternative suppliers in the short term.

The war is also affecting the supply of some agricultural commodities that are key to feeding the world’s population and of some metals that play a central role in the production of certain goods, such as technological products and motor vehicles.