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Shockwaves to trade

Economic and trade forecasts are highly influenced by the conflict in Ukraine which is also significantly affecting insurers attitudes to risk

  • Trade disruptions, sanctions, and other associated economic trends are an effect of the significant humanitarian crisis occurring in Ukraine and (Eastern) Europe.
  • The actions taken by governments and other international associations are re-shaping global trade dynamics for the long term, and with immediate impact across sectors and geographies.
  • Russia is the world’s third-largest oil producer, the second-largest natural gas producer and among the top five global producers of steel, nickel and aluminum.
  • Ukraine is a key producer of corn (6th largest), wheat (7th), sunflowers (1st), and is a top ten producers for sugar beet, barley, soya and rapeseed.
  • Reductions in supplies and shipments will inevitably lead to increased global prices for these commodities.
  • This will intensify the threat of long-lasting high inflation, thereby also increasing the risk of social unrest in both advanced and emerging economies.
  • In the Eurozone, Coface estimates at least 1.5 percentage point of additional inflation in 2022 compared to previous forecasts. In the UK, consumer price inflation is likely to average 7.4 percent this year, up from the previous forecast of 4 percent.
  • Industries such as automotive, transport, chemicals, and more generally all sectors using the above-mentioned raw materials as inputs appear as particularly vulnerable.
  • In the rest of the world, while the economic consequences will be felt mainly through the rise in commodity prices, which will fuel already existing inflationary pressures in most parts of the globe before the conflict, the drop in demand from Europe will hamper global trade.

Natural gas as a share of total primary energy consumption in 2019

Sources: Eurostat, Coface

Russia and Ukraine's share in total cereal imports (%)

Sources: ASEAN Statistics, Coface

  • Russia is a major producer of palladium, aluminum, nickel and copper. Palladium for instance is used in semiconductors production, as is neon, a gas critical for the lithography processes for chip production, of which Ukraine produces an estimated 70 percent of world exports.
  • Russian and Ukrainian supply of palladium and neon gas, notably critical for the U.S. industry, is likely to add to global semi-conductor supply disruptions. Nickel is crucial for lithium ion battery for Electric Vehicles.
  • Higher cereal prices would translate into higher consumer prices for products such as pasta or flour, as well as edible oil (such as sunflower or safflower oil, but also other edible oils like olive oil).
  • This would lead to higher meat prices, as corn and coarse grains are used for animal feed. The consequences of the ongoing La Niña1 episode, which is resulting in lower soybean and corn production in Latin America, are then likely to be exacerbated.
  • In Russia, the economy is forecast to turn again into recession and is likely try to limit the impact by deepening its trade relations with China, already the main market for its exports and imports.
  • As North American trade and financial links with Russia and Ukraine are fairly limited, the impact of the conflict is mainly expected to be felt: i) through the price channel, and ii) as a by-product of slowing European growth.
  • Despite the prospect of slower economic growth and higher inflation, the recent geopolitical events are not expected to derail monetary policy in North America at this stage.

Sources: Coface - Russia-Ukraine conflict: Stagflation ahead (7 March 2022), Allianz - Economic Outlook (18 March 2022)

Russia's share of selected metals in global production in 2019

Sources: JP Morgan, Coface

Business insolvencies forecasts* (selected countries)

Sources: Allianz Research. Note (*) without additional support measures.

Aon note: Black-out scenario is how Allianz Research refers to their most severe scenario for the war in Ukraine. A black-out case would entail harsher sanctions that would result in a freeze of economic and financial relations between Russia & the West.