GLOBAL ECONOMIC IMPACTS OF THE WAR IN UKRAINE
New research shows that disruptions in exports of grains and metals from Ukraine and Russia may cost the world’s economy $2.7 billion. Some countries will fare better than others.
TAMPA FL, December 6, 2022 – The Russia-Ukraine War has struck a major blow to global markets for vital commodities — particularly grains like maize and wheat and metals like palladium, a key component of semiconductors and catalytic converters. Shortages and delays in obtaining these raw materials is impacting supply chains worldwide, fueling economic uncertainty.
A new study led by Adam Rose, research professor at University of Southern California’s Price School of Public Policy and its Center for Risk and Economic analysis of terrorism events (CREATE), estimates that disruption to exports of grain and metal commodities during a projected one-year period of the Russia-Ukraine War will result in a $2.7 billion loss for the global economy. He will present his team’s findings at the Society for Risk Analysis Annual Meeting, Dec. 4-8 in Tampa, Florida.
In their analysis, Rose and his colleagues used a modeling approach that characterizes an economy as a set of interrelated supply chains, as shortages or delays of a given good or service lead to ripple effects – primarily downstream. Using the Global Trade Analysis Project (GTAP) Modeling System, the researchers simulated the impacts of export disruption of major grain and metal commodities to 17 countries and regions. Their analysis included 44 different commodities, including several sub-categories of grains and metals. “The Russia-Ukraine War represents a major disruption of world commodity trade and has ramifications for many countries in terms of shortages and price increases,” says Rose.
The computer simulation enabled the researchers to analyze the economic impacts for each country or region as measured in real GDP change, employment change, and the change in economic welfare. “Shocks” modeled in the study included output reductions due to the war, export restrictions due to port limitations, and import bans.
Here are some of their most significant findings:
- Disruptions of Ukrainian exports will have the largest impact on its own economy, with a reduction in real Gross Domestic Product (GDP) of over $2.6 billion (an almost two percent decrease) — in part because of its relatively large trade dependency.
- In contrast to Ukraine, the Russian economy will suffer a negative GDP impact of only $300 million (only a 0.015 percent decrease) — primarily due to Russia’s much lower trade dependency and improvements in its terms of trade related to appreciation of the ruble).
- The Rest of Asia is projected to incur a $567 million decrease in GDP, with the Rest of the Former Soviet Union, China, Africa and the Middle East also likely to incur GDP losses.
- Other countries and regions, such as India and NATO nations (excluding the U.S. and Canada) are projected to experience significant growth in GDP as they fill some of the gap in Ukrainian exports.
- The overall negative impact on global GDP is projected to be $2.7 billion, after all the positive and negative impacts are considered.
Ukraine is the world’s largest exporter of sunflower oil, fourth largest exporter of maize, and fifth largest exporter of wheat. The war prevented the harvest and/or transport to markets of 20-30 percent of Ukraine’s winter crops from 2021, and farmers’ capacity to plant crops for the spring and winter planting seasons in 2022 was seriously curtailed (It has been projected that the early grain harvest for 2023 in Ukraine could drop by 50 percent).
Russia is the world’s number-one wheat exporter and a leading producer and supplier of metals, including iron and steel, nickel, aluminum, titanium, copper, palladium, and uranium. Trade restrictions imposed on Russia have severed key supply lines for these metals, resulting in skyrocketing commodity prices. This has had cascading impacts on European automotive production lines, including companies making specialized semi-conductors, catalytic converters, cables and other automotive parts.
“Looking at these two commodities, grains and metals, give us only part of the picture,” says Rose. “The impact is greater if we take other commodities, like energy, into account. Thus far the global impacts are not severe. They could become severe if the war lasts more than a year, if bottlenecks start to hit with metals, and if energy commodity markets are stunted and rattled.”
Rose will present his study, “Supply-Chain Impacts of the War in the Ukraine on World Regions,” on Tuesday, Dec. 6, as part of a symposium on Current Supply-Chain Risks and Impacts at the Society for Risk Analysis Annual Meeting.