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Economic impacts of Ukraine war

Bread basket: combine harvesters gather the wheat crop near the village of Tbilisskaya, Russia last summer. Russia and Ukraine supply 30 per cent of the world’s wheat (File photograph by Vitaly Timkiv/AP)

He narrates his narrow escape from death matter-of-factly, almost as if it was an everyday occurrence.

His bed-and-breakfast is destroyed by artillery shelling; he is barricaded in the remnants of his kitchen when bullets tore the door. Somehow, he is only shot in the leg. Brandishing assault weapons, the invaders break through demanding his money, computers, phone – anything of value. “I kept saying, take it all, take it all, just don’t kill me.”

This is what an invading army does: assault, pillage, destroy, shoot innocents fleeing to safety.

There is no conscience. There is no morality. There is only conquer – overcome the will of people of a democratic country – at gunpoint.

This is a world shock, that another country’s leader can subject millions to such unbelievable tragedies.

This narrative is also worldwide massive respect and genuine solidarity for the population of a small nation that has united so fiercely, determined to protect their innocents, their democracy, and their right to determine their own destiny.

This is Ukraine under siege, second in landmass to Russia, one of the world’s largest grain and sunflower producers, miles and miles of them. Sunflowers, Ukraine’s national flower, that can bloom to tallest heights – 20 feet of shining golden auras tracking the warmth and power of the sun from east to west each day; then in their wilting shadows producing nourishing seeds and oil – dietary favourites consumed by people, animals and birds across the globe.

This week, the Organisation for Economic Cooperation and Development released an assessment of the economic and social impacts and policy implications of the war in Ukraine.

The OECD main text also included technical simulations of the potential economic impact of this conflict using the NiGEM global macroeconomic model. The simulations consider the impact of the shocks of the commodity and financial markets as seen in the first two weeks since the invasion by Russia, and the large upfront declines in domestic demand in both Ukraine in Russia.

Readers keep in mind that this is a summary of shorter-term assessments of the present situation, and this is not investment or other advice!

Further space simply does not permit an exhaustive analysis, so I urge you to read it on the OECD.org website. OECD calls for well-targeted support to the vulnerable, as war undermines the global recovery.

The Russian invasion of Ukraine is a major humanitarian crisis affecting millions of people and a severe economic shock of uncertain duration and magnitude.

Prior to the outbreak of the war, a global recovery was under way, seen as returning to normality following the pandemic:

• Full employment

• Inflation being under control

• Monetary policy accommodation being progressively removed

• Pandemic emergency fiscal measures phased out

The war will hinder global growth, aggravate inflationary pressure and higher prices if the conflict persists – based on model simulations.

While most OECD countries have limited trade links with Russia, both Ukraine and Russia have important influence on global economies as major suppliers in a number of commodity markets.

They together account for 30 per cent of global exports of wheat, 20 per cent of corn, mineral fertilisers and natural gas, and 11 per cent of oil.

Global supply chains are dependent upon metals from both Russia and Ukraine as components in various manufacturing:

• Palladium for catalytic converters

• Nickel in steel and battery production

• Inert gases such as argon and neon for semiconductors

• Titanium sponge used in aircraft

• Uranium for nuclear power plants.

The prices of these principal export commodities of Ukraine and Russia have risen sharply.

Nickel, coal, wheat, corn, platinum, gas in Europe, Asia and the US, oil, palladium, iron ore, aluminium, gold, zinc and copper. And the nickel price has increased the most since January 2022.

A cessation of wheat exports, for example, could result in serious food shortages in many emerging market and developing economies.

The war complicates the task of policymakers.

Faced with this new negative shock of uncertain duration and magnitude, monetary policy should remain focused on ensuring well anchored inflation expectations

In the near term, many governments will need to cushion the blow of higher energy prices, as well as diversifying energy sources and increasing efficiency wherever possible.

According to the OECD report, some governments have already introduced measures to offset energy price increases, such as lower tariffs for low-income households, reductions in excise taxes on liquid fuels and electricity, subsidies to utility companies to compensate for suppressing price increases.

Food cost escalation: increased production from other OECD countries while refraining from protectionism and multilateral support for logistics will help.

The war has underlined the importance of minimising dependence on any one country for key energy and other imports.

Conditions have also tightened financial markets around the world, reflecting greater risk aversion, and uncertainty. Commercial air travel rerouted, increasing the cost of doing business.

Longer term consequences could include pressure for higher spending on defence, the structures of energy markets, potential fragmentation of payment systems, and changes in the current currency composition of foreign exchange reserves.

The sheer cost of neighbouring EU countries absorbing the massive influx of Ukraine invasion refugees (now more than three million) has yet to be fully determined

Regretfully, none of these macro-level observations can be welcome to any Bermuda islander, already given the economic hardships of the past two years.

All that can be said for now is: be grateful, Bermuda. Be grateful that we are safe.

We pray for them all.

Next week: a discussion on the current and future impact of these issues on Bermuda islanders on a personal, family basis.

Readers, please feel free to write to me about how you are handling the increased costs of living.

All information is converted to generic facts, actual personal information is kept highly confidential, unless you grant permission to be identified.

In a bitterly ironic aside to the above Ukrainian innkeeper’s story of survival, according to LinkedIn, individuals from all over the world have been booking holidays on Ukrainian Airbnb websites, not intending to go there, but as a means of financing Ukraine’s survival.

Martha Harris Myron is the author of Amazon-published Bermuda Islander Fundamental Financial Planning Primers and consultant to the Olderhood Group Bermuda Ltd. Contact: martha@pondstraddler.com

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Published March 19, 2022 at 7:41 am (Updated March 21, 2022 at 8:01 am)

Economic impacts of Ukraine war

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