Large economies will move towards “separation” based on geopolitical considerations in order to achieve greater self-sufficiency in production and trade.
The war in Ukraine not only created a humanitarian crisis of huge but also dealt a severe blow to the world economy. On April 11, the Secretariat of the World Trade Organization analyzed the effects of the war on global trade and development.
“The people of Ukraine are suffering and devastating, but the costs of reducing trade and production are likely to be felt by people around the world due to rising food and energy prices and reduced availability of goods exported by Russia and Ukraine.” According to the Secretariat's note.
Using a simulated global economic model, the WTO predicts that the crisis could reduce world GDP growth by 0.7-1.3 percent, leading to growth of between 3.1% and 3.7% in 2022. The model also predicts that world trade growth this year could nearly halve from 4.7 percent forecast in October last year to 2.4-3 percent.
Although the shares of Russia and Ukraine in total world trade and production are relatively small, the organization notes, they are important suppliers of basic products, including food and energy. In 2019, both countries supplied about 25% of wheat, 15% of barley and 45% of sunflower exports. Russia alone accounted for 9.4% of world fuel trade, including 20% of natural gas exports.
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Europe, the main destination for both Russian and Ukrainian exports, is likely to be burdened with economic influence. Reducing the supply of grain and other foodstuffs will also raise prices for agricultural products, which will have a negative impact on food security in poor regions.
Africa and the Middle East are the most vulnerable regions, as they import more than 50% of their grain needs from Ukraine and/or Russia. Some sub-Saharan African countries are facing the possibility of rising wheat prices to 50-85% due to the impact of the war on grain supplies from the region.
“The current crisis is likely to strengthen international food security at a time when Food prices have already reached historically high levels due to the COVID-19 pandemic and other factors, ”warns the Secretariat.
One of the long-term risks is that war could provoke the collapse of the world economy into separate blocs. Economic sanctions could lead large economies to move towards “segregation” based on geopolitical considerations in order to achieve greater self-sufficiency in production and trade. Even if official blocs do not appear, private entities may decide to minimize risk by reorienting supply chains.
A note from the Secretariat warns that the loss of revenue from such developments “will be severe, especially countries with developing economies. “
