Russia has invaded Ukraine and sent shock waves across the globe. This war can jeopardize the world economy slowly recovering from the disruptions caused by the COVID-19.
So, what are the world economy projections after Putin attacks Ukraine?
Before discussing the impacts of this deadly war on the global economy, let’s dive into understanding a brief history of this conflict.
Russian Ukraine Conflict, A Short History
Since the ousting of the Pro-Russian president in Ukraine in 2014, Russia had not been feeling comfortable with its neighbor. In response to these developments in Ukraine, Russia seized its southern region of Crimea and assisted the separatists in a war against the Ukrainian government.
There had been skirmishes on the border and constant war in Ukraine between the separatists and Ukrainian forces. It has cost Ukraine thousands of lives and more than a million internally displaced people.
Late in 2021, Russia started deploying heavy forces near the Ukraine border but denied any intention to attack Ukraine. Then Putin discarded a peace deal signed in 2015 and recognized the rebel-controlled areas as independent ones.
On February 24, 2022, Russia launched a full-scale invasion of Ukraine. It was an attack by air, sea, and land. Russia is advancing rapidly deep into Ukrainian territory but facing tough resistance from the locals and Ukrainian forces.
Russia has threatened with dire consequences to any outside power getting involved in this conflict, but the world cannot afford to turn a blind eye to this conflict.
Recent Developments in the wake of the Russian-Ukraine conflict?
The President of Ukraine has told the media that it will send a delegation to hold talks with Russia to solve this conflict through dialogue.
The world has responded to chilling aggression by Putin and stated that the war is no solution to any problem. Since Europe feels most threatened by this aggression from the Russian side, they have condemned this invasion and imposed sanctions on Russia.
Europe has closed its airspace to Russia due to its aggression against Ukraine. It has also approved sanctions to inflict penalties on Russian Federation.
The UN security council has convened an emergency meeting to discuss the Russian-Ukraine conflict. The proposed resolution at this meeting will call for an immediate ceasefire and delivery of humanitarian aid to the Ukrainian civilians.
Ukraine has filed a case of genocidal activities at the International Court of Justice against Russia. It has asked the court to halt the Russian invasion and make Russia pay for its crimes.
FIFA has asked Russia to play its home matches at a neutral venue. It also has banned the Russian flag and national anthem from these matches.
The prime minister of Sweden told the media that Sweden would deliver military aid to Ukrainian forces to fight against Russian aggression.
According to the EU, more than 300,000 people have entered Europe since the Russia Ukraine War.
President Biden has imposed sanctions in response to this aggression by Russia. The US has levied significant economic penalties on Russia, targeting its banking, technology, and aerospace sector.
This war may impact the recovery process of the world’s economy from the shock of COVID-19. It is the most fierce war in Europe since the end of world war 2, so it will have repercussions for the world economy. Western governments are imposing penalties on Russia, but these penalties will impact their economies too. Biden has imposed heavy sanctions on Russia, but these sanctions will also dent his customer base as they will have to pay more to meet their gasoline needs.
This invasion and what follows can lead to inflation and shatter the financial markets. The world economy is already suffering from high inflation and fragile financial markets. As the fuel prices rise, the consumers will have less money to spend and invest in the economy. And with tumbling financial markets, people won’t have sufficient cash at hand, and their spending will decrease significantly. It will shrink the economies badly, and the governments will fail to relieve its people.
How deadly this conflict proves for the world economy depends on the scope and length of the war. It also depends on the severity of the sanctions imposed by the US, Europe, and Russia on each other.
According to Bloomberg, there could be three projections for the world economy after Putin attacks Ukraine:
In the first scenario, the war ends quickly in one way or another, and there is no more violence in the region. It will keep inflation under control, and the US and European economies will continue on their recovery path.
A prolonged conflict generates stricter sanctions from the US and Europe in the second scenario. It will disrupt Russia’s oil and gas exports, delivering an energy shock to the global system and a massive blow to global economies.
IN THE THIRD SCENARIO, the US and Europe impose sweeping sanctions on Russia, and Russia retaliates. Russia may cut the gas supply to Europe, badly impacting its economic growth. The US will also get an economic hit, and its citizens will face harsh financial conditions at home.
It will badly disrupt the global financial system and have massive consequences for the world.