The Russia-Ukraine War: Economic Effects

As a result of its invasion of Ukraine, Russia stands on the edge of bankruptcy. The stock market has closed, interest rates have doubled, and the rouble has hit its lowest point in history.

According to projections, Russia's GDP will fall by 7% next year, instead of the 2% increase predicted before the invasion. Others speculate that the fall might be as high as 15%.

Along with the massive humanitarian situation, Russia's "military operation" in Ukraine has now resulted in a dramatic drop in global economic growth forecasts. Forecasts have been widely reduced by analysts and professionals, owing to unpredictable commodity prices, supply chain disruptions, and the risk of the Russia-Ukraine conflict intensifying.

In its report, the rating company Moody's Investors Service stated that the crisis has not halted global economic progress, but rather has crippled it. India's GDP predictions for 2022 have been cut by 0.4 percentage points. The Indian economy is expected to grow by 9.1% this year (vs. 9.5%), followed by 5.4 percent growth in 2023, according to Moody's. 

Overall, predictors expect the G-20 economies to grow at a rate of 3.6 percent in 2022, falling from a forecast of 4.3 percent in February. It also predicts that growth will decrease to 3.0 percent in 2023. It anticipates a 3.2 percent expansion among G20 advanced economies in 2022, and a 4.2 percent expansion among G20 emerging market economies in 2022, down from 3.9 percent and 4.9 percent, respectively, before the invasion of Ukraine.

Following the invasion and a jump in commodities prices, investment firm Goldman Sachs has lowered its global growth forecast. It now expects the world economy will grow at 3.4 percent in 2022, down from 4.3 percent pre-invasion. Its year-end global headline inflation prediction for 2022 has also been raised to 7.0 percent year-on-year (from 5.5 percent pre-invasion).

In terms of inflation, it predicts that inflation will grow 3.5 percent on average among the G-20 emerging market countries, which is higher than February's forecast.

Argentina, Brazil, China, India, Indonesia, Mexico, Russia, South Africa, and Turkey are among the G20 emerging market countries.

Commodity and food price shocks, financial repercussions from sanctions, and security challenges in the scenario of an escalation or wider military war are the three main channels that could be affected by the ongoing geopolitical crisis.

In conclusion, supply interruptions and trade shocks from the Russia-Ukraine conflict, a predicted strong rise in inflation in the next 6-8 months, budgetary pressures, and a widening current account deficit (CAD) would all hinder India's development in the coming fiscal year.

---- Author Astha Singh