Economic Survey 2023: How The Russia-Ukraine War Dented The Western Economies

The Economic Survey for 2023 is out. Focussing on Western economies after two years of the Covid-19 pandemic, and amidst the global slowdown ushered by the Russia-Ukraine war last year, the document highlights several indicators.

One of the consequences of the Russia-Ukraine crisis has been the price rise in foodgrains and inflation on the energy front.

The annual per cent change in the consumer price index, as of July 2022, was 10.1 per cent in the United Kingdom, 8.5 per cent in the United States, 7.5 per cent in Germany, 6.1 per cent in France, 7.9 per cent in Italy, and 7.6 per cent in Canada.

In June 2022, the wheat, corn, and barley exports from Ukraine were around 1 million tonnes, 40 per cent down from June 2021.

To put things in perspective, Ukraine accounts for 30 per cent of the world’s sunflower oil production and 4 per cent of wheat production.

In 2019, Ukraine’s share in India’s sunflower oil imports was around 77 per cent. 

As a result of the war, prices of key agricultural commodities shot up. Wheat prices almost tripled before cooling off. Corn and barley prices more than doubled.

Sunflower oil, rapeseed oil, and palm oil prices increased by 200 per cent, adding to the global inflation woes. 

If one were to look at the price of staples for the 27 European Union countries, bread prices have inflated by over 15 per cent year-on-year (YoY) while oils and fats have gone up by over 30 per cent annually.

In Bulgaria, oil, fats, and bread prices have inflated by over 40 per cent in the last 12 months. Similar trends have been witnessed across key European economies.

For July 2022, the annual per cent change in the consumer price index for energy was 36 per cent in Germany, 28 per cent in Canada, 28.65 per cent in France, 42.96 per cent in Italy, and 57.7 per cent in the UK.

Thus, the inflation crisis in the West is being driven by two key commodities — energy and food. 

The shades of the economic crisis, which have been feared in the United Nations report, are already visible in Sri Lanka, Pakistan and Bangladesh, to begin with.

In Europe, energy rationing is already underway in many countries.

Japan, for the first time in decades, is tackling inflation and rising food prices, given the import stress.

One of the other consequences of the war has also been the tightening monetary policy.

While many have debated the role of central banks in an era of supply-side induced inflation, some have called them out for ushering a period of slow growth and even a recession. 

At the end of 2021, the interest rate was 4 per cent in India, minus 0.5 per cent in the Eurozone, 0.25 per cent in the UK, and 0.07 per cent in the US.

Post the inflation storm, triggered by the Russia-Ukraine war, the forecasts for 2022 and 2023 have thrown the central bank tools for a toss. 

However, for the end of 2023, the forecasts project the interest rate in India to be around 6.25 per cent, 2.25 per cent in the Eurozone, 3.25 per cent in the UK, and 3.33 per cent in the United States, clearly factoring in the relief in the crude and natural gas prices and for the war in Ukraine to cease.

Clearly, the policymakers are expecting the inflation to ease. 

Amongst the global economies, India stands out as a bright spot, however.

Projected to grow in excess of 6 per cent for FY 2023, the country will register a better growth rate compared to its neighbouring economies.

China, aiming for a 5.5 per cent growth rate last year, only grew at 3.2 per cent, and is expected to touch 4.4 per cent in the upcoming financial year.

Courtesy of the Covid-zero lockdowns, China’s manufacturing and industrial production took a hit last year. 

Also read: Recovery Complete, India Back On Pre-Pandemic Growth Path: Economic Survey 2023