University of economics and finance subject international payment topic the effect of the russia ukraine war on global economic

However, the conflict between Russia and Ukraine has had a negative impact on the economy, leading to limited access to funds, reduced purchasing power, an increasing inflation rate, and

UFE UNIVERSITY OF ECONOMICS & FINANCE

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UNIVERSITY OF ECONOMICS AND FINANCE

Subject: International Payment

Topic: The effect of the Russia - Ukraine War on Global economic

Members:

No Full Name Student’s ID Contribution

1 Lê Vũ Mỹ Quyên 205084749 100%

2 Trương Thiên Lạc 205085146 100%

3 Võ Trần Anh Thư 205084782 100%

4 Nguyễn Thị Thúy Hằng | 205085061 100%

5 Phạm Quốc Trung 205084812 100%

6 Lé Hoang Thy 205084945 100%

Lecturer: Lam Dang Xuan Hoa

HCM City, 14/6/2023

Contents

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23 THEIMPACTS ON GAS SUPPLYING - 2-2 2H 8 2.4 THEIMPACTS ON WHEAT SUPPLYTNG - 2-2-2 ni rererrre 11 iine 13 II 13

L Overview

NATO expressed its intention to grant membership to Ukraine at some date in the distant future Russia sees this as crossing a red line, threatening its security On February 24,

2022, Russia launched a military operation in the region with the aim of clearing Ukraine from soldiers and Nazism The war is going on intensely and has not come to an end yet After the COVID-19 pandemic, businesses and countries are gradually recovering the economy However, the conflict between Russia and Ukraine has had a negative impact on the economy, leading to limited access to funds, reduced purchasing power, an increasing inflation rate, and restrictions on trade This has caused turmoil in the financial markets and increased uncertainty about the recovery of the global economy (Coface Report, 2022) The effects of the Russia-Ukraine war on global trade (CRS Report, 2022):

Europe's economies are directly affected by the war between Russia and Ukraine that has triggered turmoil in the financial markets

The conflict between Russia and Ukraine will indirectly affect the global economy

Il Analysis/contents

1 Russia was affected by the war

The OECD & European Union nations swiftly imposed economic sanctions on Russia and provided military assistance to Ukraine in response to worldwide censure

Exports of critical items to Russia prohibited high-tech equipment & components in electronics, telecommunications, aircraft, and oil refining among other areas

Financial sanctions have led to the freezing of a large part of Russia's currency reserves (including a large chunk of the liquid assets in the National Wealth Fund)

Many large Russian banks have been excluded from the SWIFT international payment messaging network

Capital outflows from Russia in 2022 were historically large despite the imposition of rigorous capital controls (Bank of Finland Bulletin, 2023)

Chart 1

Russia's financial account

-100

-200 |

2002 2093 2004 2005 2006 2007 2008 2009 2010 201 1 20122013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Note Negative value refers to outflow

Sources: Macrobond, Central Bank of Russia, BOFIT

Figure: Russia’s Financial Account (Bank of Finland Bulletin, 2023)

Rising oil prices disrupt global value chains including Russian and Ukrainian enterprises Oil and gas, which represent roughly half of Russia's goods exports, also account for about 40 % of Russia's federal budget revenues (taxation of oil & gas production and exports) Restrictions on imports of Russian crude oil and petroleum products are now in effect (December 2022 and February 2023, respectively)

The restrictions on exports to Russia seek to reduce the technological capabilities of Russia's military industry

Russia's total goods imports were in December 2022 down by about 20 % in the year, while technology imports were off by about 30 % (Bank of Finland Bulletin, 2023)

Chart 2

Estimate for the monthly development of Russia's total goods imports and

technology imports based on mirror statistics

—— Total imports (left) Technology imports (right)

25 VSD billion (seasonally adjusted) 3 USD billion (seasonally adjusted) ;o

Sources: Eurostat, Macrobond, UN Comtrade, BOFIT

Figure: Estimate For The Monthly Development Of Russia’s Total Goods Imports And Technology Imports Based On Mirror Statistics (Bank of Finland Bulletin, 2023)

Many other machinery and equipment have contracted sharply Last year, for example, passenger car production was down 67 %, excavators down 53 %, and television receivers down by 36 % The collapse suggests that export restrictions are hitting those branches that rely most on imported inputs and machinery

According to preliminary estimates, the Russian GDP contracted by 2 % in 2022 The volume of retail trade, a proxy for goods consumption, declined by 6 % in 2022

At the same time, consumer prices increased by 14 % and the average purchasing power of Russian households diminished The government has also cushioned the blow for households

by increasing social spending

Russia's public finance situation has tightened gradually The federal budget turned to

a deficit in 2022 reaching 2 % of GDP In January 2023, the deficit widened substantially further (Bank of Finland Bulletin, 2023)

Chart 3

Monthly development of Russia's federal budget

5 000 RUB billion (seasonally adjusted) - -

3 000 :

2 000

1 000

-3 000

Sources: CEIC, Russia's Ministry of Finances, BOFIT

Figure: Monthly Development Of Russia’s Federal Budget (Bank of Finland Bulletin, 2023)

Inflationary pressures have caused the Federal Reserve, the European Central Bank (ECB), and the Bank of England to tighten monetary policy more forcefully than previously expected FED is still unable to control inflation owing to the war, interest rate rises will continue (Bank of Finland Bulletin, 2023)

UNEMPLOYMENT: Russia's unemployment rate fell to a record low of 3.8% in August, but average nominal wages earned by Russians fell in month-on-month terms and weekly inflation returned, painting a mixed picture overall of the country's economic health

2018 2020 2022

Figure: Russia’s Unemployment Rate (Bank of Finland Bulletin, 2023)

2 The effects of the Russia-Ukraine war on global trade

2.1 General Situation

The Russia-Ukraine conflict has increased instability for the global economy, which is still recovering from the economic "trauma" caused by the Covid-19 pandemic

Inflationary

Global inflation is 8.8% in 2022, up from 4.7% in 2021

Inflation Projections

and the War in Ukraine

Y-o-y inflation rates in 2022 in selected countries

(projections as of June 2022)

GB

15.6%

©

@

13.3% 13.3%

11.1% 10.8% 10.3%

6.2%

LT ` oot: se:

P.p change since Dec ‘21 projection

Figure: Inflation Projections And The War In Ukraine

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The Global Inflation Outlook

Projected annual inflation by country in 2022

Me

sr

oo

` wo |

@ Upwards of 50%

â 20-50% =

l8 10-19.9% PS

™ Less than 5%

Annual average Projection as of October 2022

Source: IMF

Figure: The Global Inflation Outlook

Disruptions in world trade and investment will curb growth in developing countries and add to price pressures

Currency :

Euro fell sharply

USD reached a record

DOLLAR EXCHANGE RATES

INDEXED DAILY PER DOLLAR RATE FOR EUROS, POUNDS, AND YEN, JAN 2020-MAY 2022

125 Exchange Rates

® Euros per USD

420 = Pounds per USD

® Yen per USD

115

a

a

Π110

®

©

ø 105

=

=

L 100

9

®

ð 95

Uv

£

90

85

2020 Q1 2020 Q3 2021 Q1 2021 Q3 2022 Q1 2022 Q3 Source: Federal Reserve Bank of St Louis FRED data EconoFact econofact.org

Figure: Dollar Exchange Rates

2.2 Pressure from fuel prices

In the World Economic Outlook Update (WEO) January 2023, the International Monetary Fund (IMF) forecast that the global growth trend will decelerate from 6.2% in 2021

to 3.4% in 2022 and 2.9% in 2023 - equivalent to about 1 trillion USD lost

In addition to the softening growth outlook as forecasted by the IMF, another damage from this war is rising inflationary pressures across world economies

The IMF said consumer prices raised an average of 7.3% in the wealthiest countries last year - higher than the 3.9% forecast in January 2022 For poorer countries, that number increased from 5.9 percent expected before the conflict to 9.9 percent Global inflation is estimated to increase from 4.7% in 2021 to 8.8% in 2022 before decreasing slightly in the following years

Inflationary pressures are increasing mainly because of supply chain disruptions caused by the conflict Russia plays an important role in both world energy production and exports

According to statistics from the Organization of the Petroleum Exporting Countries (OPEC), Russia is the world's largest natural gas exporter in 2021 with 241.3 billion m3 and the second largest crude oil exporter Globally, accounting for 8.3% of total crude oil exports

in 2021 and second only to Saudi Arabia with 16.5%

Therefore, any disruption in the supply of oil and other energy products from Russia will have a multidimensional impact on world crude oil and energy prices Because of Western sanctions on Russia's exports of oil and other energy products, international crude oil prices have surged In early 2022, the price of Brent crude oil traded in the range of $78-80 per barrel Oil prices peaked at nearly $140 a barrel in March 2022 after the conflict broke out, then traded at around $122 a barrel In the period from then to August 2022, oil prices still surpassed the $100/barrel mark before falling slightly (VietnamPlus, 2023)

“The war shocks to demand and prices that have spread throughout the global economy, together with the pandemic and other policy decisions have created headwinds for economic growth I don't think we've overcome these challenges yet," said Robert Kahn, global director of geoeconomics at consulting firm Eurasia Group

Figure: Impact of the Covid-19 pandemic and the Russian-Ukrainian war on the world's

leading economies (VnEconomy, 2023)

2.3 THE IMPACTS ON GAS SUPPLYING

Manufacturing exporters such as Vietnam, Thailand, and Mexico have to face a sharp decline, especially in energy-intensive sectors

The EU faces a potential shortfall of almost 30 billion cubic meters of natural gas this year

Germany may be forced to implement a gas distribution regime that would cripple a wide range of industries, from steelmaking to pharmaceuticals to commercial laundry

Global spot gas prices

2021

Source: ICIS

Figure: Global Spot Gas Prices The price of natural gas in Europe has increased THREE TIMES from pre-conflict levels It caused an almost instantaneous global supply shock Europe will have to find a hole equivalent to: 14% of globally traded gas volumes and 27% of the long market As its attacks

in Ukraine intensified, traders, shippers and shunned Russian oil, removing much of it from the daily global supply

BENEFICIARY COUNTRIES:

Russia's largest oil and gas importers are China, Saudi Arabia and India with more than 30% discount

China recently opened the border gate -> oil import increased

Saudi Arabia imports gas from RUSSIA -> price of gas increased

Russia still gets benefits from new wealthy customers

IMPORTS OF RUSSIAN FUEL OIL

oe ee india and Saudi Arabia/United Arab Emirates

8 = China imports Bindia imports GSaudi/UAE imports

7

6

5

4

3

2

1

0

31-uk2t 30-Sep-21 30-Nov- 2t 31-Jan-22

sec Rườaengtvbuug1MG00 3 REUTERS

Figure: Imports Of Russian Fuel Oil

2.4 THE IMPACTS ON WHEAT SUPPLYING

Russia and Ukraine are two granaries accounting for one-third of the world wheat export market

Prices skyrocketed due to the effects of the war

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| 000%

380.00

4 #

AQ.00%

7800

On May 16, 2022, wheat prices spiked to $453/ton

The overall price of wheat is 80% higher than a year ago

Leading wheat producers globally

2021/22 (in 1,000 tons)

China ( 136,946 India i 109,520 Russia (II 75,500 U.S EE 44,790 Australia 8 34,000 Ukraine 33,000 Pakistan f 27,000 Canada Wf 21,652 Argentina {ij 20,500

Source: US Department of Agriculture;

USDA Foreign Agricultural Service

Figure: Leading Wheat Producers Globally

The war in Ukraine has blocked grain transport routes, disrupted fertilizer supply chains, and "poured fuel into the fire" of the global food crisis, according to experts Ukraine is a major supplier and exporter of cereals such as wheat, barley, corn or sunflower oil

Egypt, Lebanon, and Turkey depend heavily on this food source

The Most Vulnerable Countries

Amid Wheat Shortages

Countries among the world's least developed which are most

dependent on wheat imports from Russia and Ukraine (2020)

Import share: & from Ukraine & from Russia

Somalia @

Benin @

Laos @ Egypt S

Sudan &

DR Congo &

Senegal @>

Tanzania @

0% 20% 40% 60% 80% 100%

Least developed and/or African countries

Sources: UNCTAD, Statista

Figure: The Most Vulnerable Countries Amid Wheat Shortages