Ukraine. The duration of the conflict will be decisive

Written by Daniela Soares Ferreira and Sonia Perez Pinto

Alarms are sounding from all sides, and although there are many doubts, one thing is certain: a war between Russia and Ukraine will bring economic problems to the world, to Europe and, of course, to Portugal. The scale of these problems will now depend on a combination of factors such as sanctions against Russia or the duration of the war. “The effects depend on how the situation develops,” Joao Cesar das Neves tells Nascer do SOL. The economist recalls that “a short war, accompanied by less sanctions, has economic effects completely different from the multi-month conflict with Russia even if it is isolated from the international market. But at the moment no one can predict the consequences.”

For now, given the risks, there are those who suggest that this war could prompt the European Central Bank to halt interest rate hikes and be more cautious about a possible decision by the entity led by Christine Lagarde to pull the tide. stimuli. “The negative impact on the European economy, with lower trade and higher energy costs, may force the European Central Bank to postpone the withdrawal of monetary stimulus and raise interest rates, and thus the consequences may be deflationary and positive, in the medium term. For stocks”, said Stephen Santos, Bank Director BIG.

Just on Friday, European Central Bank (ECB) chief economist Philip Lane told European leaders in Paris that the central scenario of the conflict in Ukraine could jeopardize 0.3% or 0.4% of eurozone GDP. And in the case of the most severe scenario, it could result in a loss of 1% of GDP. According to international newspapers, the chief economist also noted that the conflict will result in inflation estimates being exceeded.

An opinion already shared by the Managing Director of the International Monetary Fund (IMF), on ensuring that the Russian invasion of Ukraine represents a “great economic risk to the region and the world” and that it could affect economic recovery. I am very concerned about what is happening in Ukraine and, above all, about the consequences for innocent people. This adds important economic risks to the region and the world. We have evaluated the effects and are ready to support our members if necessary, Georgieva said in a message on the social network Twitter.

Despite these risks, Cesar das Neves asserts that it is “too early to say at the moment”, acknowledging, however, that “it would be good to start creating new scenarios”. With regard to Portugal, the economist recognizes that the country has “enormous external debt, modest growth, and most of that depends heavily on exports, such as tourism,” noting that this sector “could be among the biggest victims, if the situation were to generate a crisis.” true international.

Uncertainties shared by analysts contacted by Nascer do SOL. According to the director of BiG Bank, Stephen Santos, “The European economy will suffer from rising energy and agricultural costs, which will have a rapid impact on business and, at a later stage, on consumers. Increases in producer and consumer inflation will have a clear and negative impact on the balance sheets of companies and households ».

The most predictable is XTB analyst, Henrique Tomé, who sees it as too early to assess the potential economic impacts of this decision on the part of Russia. “At this point, markets are concerned about the duration of the current conflict and doubts prevail about the current tensions in Eastern Europe. It is essential to understand whether and to what extent this situation can escalate further.” However, he acknowledges that “periods of war always tend to Until they are inflationary periods, so this scenario is not encouraging because inflation has already reached alarming levels at the moment.”

Paolo Rosa, chief economist at Banco Carregosa, gives as an example the high price of gold, close to two thousand dollars an ounce. “This is a case of heightened uncertainty in the face of the worsening military conflict in Ukraine and also points to a slowdown in interest rate hikes, as a result of a possible economic slowdown, due to the economic sanctions imposed on Russia,” he told our newspaper. .

Rosa also recalls that “if this stagflation (a simultaneous state of economic stagnation and high inflation) materializes, then expectations at the beginning of the year that indicated new gains for stock markets in 2022 will not materialize. If the conflict in Ukraine was limited in time and did not Translated into permanent inflationary pressures, markets can recover from current levels.”

What can you expect?

While the price hike is already beginning to be felt, what could increase further are the prices of various products such as food or fuel. It is clear for Henrik Tome: “If tensions worsen in Eastern Europe, food prices could also rise, because both Russia and Ukraine have an appropriate weight in terms of exports of different raw materials, from energy products to foodstuffs such as grain,” says Nascer do SOL.

This escalation of tensions in Eastern Europe could be “a problem, as the prices of raw materials will rise, that is, the price of oil and natural gas, which will increase production costs, and thus increase the final prices of goods, that is, inflation may not stop there, but rather rise More in the medium term,” he concludes.

The granary in Europe and not only

Economist Paulo Rosa also warned that “Russia’s invasion of Ukraine could exacerbate prices in Portugal.”

The economist states that Russia “supplies Europe with about 30% of Europe’s oil and 35% of its natural gas.” But not only.

Russia is also the largest producer of wheat, and Ukraine also comes in the top five. This leads to the conclusion that the large production of barley, corn, sunflower and rapeseed can also be affected. Agricultural products are also of great value. Russia is the world’s largest producer of wheat and Ukraine is among the top five,” he says, adding that the two countries “account for about 29% of global wheat exports, 19% of global corn supply, and 80% of global exports” of sunflower oil. Wheat continues to rise nearly 6% and hit its highest level since July 2012. CME-listed corn continues to rise 4%, counted by Paolo Rosa.

And the effects don’t stop there. “Also in terms of fertilizers, there may be a shortage,” the official said. This is because Russia is “one of the largest producers of potash, urea and phosphates”. This is because, he asserts, the manufacturing supply chains “will not be immune to conflict or sanctions against Russia either.”

The economist adds other branches that could be affected: “Caesar’s country is also a significant exporter of nickel, estimated at 49% of the world share, palladium 42% and aluminum 26%, according to Macrobond.” In short, the most severe and comprehensive economic sanctions against Russia will reduce the amount of wheat on the market, as well as oil and industrial minerals, which will raise the prices of these raw materials. In short, prices in Portugal may rise even more if the conflict in Eastern Europe worsens.”

As Paulo Rosa recalls, “Russia’s invasion of Ukraine raised the prices of gas, oil and agricultural products, and raised fears of an economic slowdown.”