War and Economy
By Luis Fierro Carrion (*)
Twitter: https://twitter.com/Luis_Fierro_C
The Russian invasion of Ukraine has exacted a heavy human toll, with tens of thousands of Ukrainian civilians killed, apart from some 20,000 Russian troops (as of April 13, according to Ukrainian sources). In the besieged city of Mariupol alone, the Mayor indicated that more than 20,000 civilians could have been killed. The number of injured could reach more than 100,000, and there are more than 11 million displaced people (of which about 5 million have left Ukraine).
Apart from this, the war has brought considerable economic losses, with the destruction of homes, infrastructure, roads, etc. It is estimated that more than USD 100 billion worth of infrastructure has been destroyed in Ukraine. The World Bank estimates that Ukraine's Gross Domestic Product (GDP) could fall by 45% as a result of the war, due to the collapse of production and exports in much of its territory. The poverty rate could rise from 1.8% of the population to about a third.
The Russian economy, subject to severe sanctions by NATO countries and other allies (Japan, South Korea, Australia, etc.), could fall by 11.2% in 2022, according to the World Bank.
If the war is prolonged and escalated, the drop in GDP could reach 75% in the case of Ukraine and 20% in the case of Russia.
Other countries severely affected will be the neighbors of Ukraine and Russia, including Belarus (-6 %) and Moldova (countries in which Russian troops also operate, in the former at the invitation of its dictator, in the latter due to the occupation of the Transnistria area).
The growth projection for Central Europe (Bulgaria, Croatia, Hungary, Poland and Romania) will be reduced from 4.7% to 3.5%, due to the influx of refugees, the increase in commodity prices and the deterioration of business confidence. Refugee influx fluctuates between 4% of the pre-war population (Hungary) to 15% in the case of Moldova; Almost two and a half million people have entered Poland, equivalent to 6% of the pre-war population.
At the global level, it is estimated that the GDP growth rate will fall from 4% to 3%, mainly as a result of the effects on world trade, and the rise in the prices of fuel and food.
Price increases have been especially pronounced for commodities in which Russia and Ukraine are key exporters, including: natural gas, coal, oil, fertilizers, wheat, aluminum, iron ore and palladium.
In Latin America and the Caribbean, the Inter-American Development Bank (IDB) estimates that the growth rate will fall by one point in 2022, from 2.1% to 1.2%, and there could be a contraction of 0.4 % in 2023.
The growth scenarios for each country depend on various factors, from their commercial links with Russia and Ukraine, to their level of indebtedness; but in general, the IDB expects it to decrease compared to the pre-war scenario.
The high price of hydrocarbons and cereals will benefit the countries that export these products, while the importers, particularly those in Central America and the Caribbean, will suffer higher inflation.
Russia and Ukraine are important markets for several of the products that Latin America and the Caribbean exports, such as dairy products and meat (Southern Cone), fruits (for example, bananas, in the case of Ecuador) and flowers.
Around 20% of the region's total fertilizer imports come from Russia, as do more than 5% of iron and steel imports.
Another collateral effect will be the rise in international interest rates, as a result of the higher inflation faced by countries such as the United States and Europe.
In the case of Ecuador, the impacts will be contradictory: a positive effect due to the rise in the price of oil, a negative effect due to the increase in the price of fertilizers and the closure of the markets for bananas and flowers. The World Bank increased its 2022 growth forecast to 4.3% (the second fastest growing country in Latin America, after Colombia).
But uncertainty will be the global and regional tone, subject to how the Russian invasion and the aftermath of the COVID-19 pandemic evolve.
(*) Translation of my column published in Diario "El Universo" on April 15, 2022'
https://www.eluniverso.com/opinion/columnistas/la-guerra-y-la-economia-nota/
