Nouriel Roubini on the impact of the Ukraine war on the global economy

• Geopolitical Risks
• Sanctions against Russia
• stagflation

At the invitation of the French Council Presidency, the finance ministers of the EU are currently discussing the economic effects of the Ukraine war and the sanctions against Russia. Central issues are the question of energy prices and other possible sanctions.
Russia’s war against Ukraine is having a massive impact on the global economy. After two years of uncertainty caused by the corona pandemic, the war in Ukraine poses further challenges for the global economy, and geopolitical risks continue to increase. Other geopolitical conflicts may intensify, look at Taiwan, for example. Are China, Russia, Iran and North Korea striving for a revision of the international order?
The ECB’s chief economist, Philipp Lane, told the Frankfurter Allgemeine Zeitung that the current geopolitical tensions are “impacting not only on oil and gas prices, but also on investor and consumer confidence in trade”.

Direct effects of the Ukraine war are already evident

Russia and Ukraine are considered major grain exporters, accounting for a quarter of global wheat exports. The fear of supply bottlenecks due to the Ukraine war and the associated sanctions are driving up the price of wheat significantly, rising by over nine percent.
The stagflation shock triggered by the Ukraine war will be felt worldwide through the intertwined energy markets: Dependence on Russian gas for the EU, but also rising crude oil prices for consumers in the USA. Not to mention consumer and investor confidence.
Experts warn that the war will trigger a massive negative supply shock that will further weaken growth after the ongoing COVID-19 pandemic and further increase inflationary pressures. “Given this momentum, even an otherwise strong US economy will experience a sharp downturn and be headed for a growth recession,” said Nouriel Roubini, chief economist at Atlas Capital’s team. In addition, Russia could throttle oil production in response to Western sanctions. In this way, Russian President Putin could inflict asymmetric damage on the European and American markets and build up a financial cushion for further economic sanctions himself. To ease the pressure on the oil market, the Europeans and the USA can release part of their national oil reserves, as the Federal Ministry of Economics did on Wednesday. There is also growing pressure on the USA to resume past agreements and activate further “oil wells”, such as with Iran.
It remains to be seen how the ECB Council will decide on the key interest rate at its monetary policy meeting on March 10. A decision on a gradual exit from the current course is expected.

War, fears of inflation and general economic risks are affecting the DAX

The inflation rate rose to 5.1 percent in February: commodity and energy prices rose by 22.5 percent, further price increases are expected. The German share index DAX fell significantly over the course of the week.
In terms of individual stocks, the bank stocks are the biggest losers: Commerzbank lost almost 9 percent and Deutsche Bank stock almost 7 percent. The situation was similar for the other large European banks. This is partly due to the exclusion of Russian banks from the SWIFT system. According to the EU Official Journal, seven Russian banks are now excluded from the SWIFT system: VTB, Otkritie, Novikombank, the state bank Promsvyazbank, Rossiya, Sovcombank and the state bank VEB. The exclusion from international payments also means that Russian banks can no longer meet their obligations to their international partners. This is also the reason for the exception of the largest Russian bank, Sberbank, and Gazprombank; they are the main financial institutions of the energy suppliers. However, the EU is imposing further sanctions on these two banks, as well as other Russian financial institutions.
The extensive punitive measures taken against Russia by the EU and the USA in the financial, energy and transport sectors are increasingly isolating Russia. In addition to being excluded from the SWIFT system, investments in projects of the Russian Direct Investment Fund and the delivery of euro banknotes to Moscow are also prohibited. The sanctions are already taking effect, the Russian central bank is already having an effect, “the ruble is in free fall,” said Federal Finance Minister Christian Lindner. There have long been boycotts in the movement of goods: for example, large Polish retail chains are refusing goods from Russia and Belarus, but German companies such as Rossmann are also participating in the boycott.

Editorial office finanzen.net

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