o The ongoing conflict between Russia and Ukraine will reportedly have

major ramifications for the global economy, which is just recovering from
the stress of the coronavirus pandemic. \
o
o The International Monetary Fund (IMF) had pointed out earlier that both
Russia and Ukraine are major commodity producers, and disruptions there
have resulted in soaring global prices, especially that of oil and natural gas.
With Ukraine and Russia accounting for up to 30% of the global exports for
wheat, food prices, too, have jumped. The IMF added that the entire global
economy would feel the effects with slower growth and faster inflation.
o
o Higher commodity prices intensify the threat of long-lasting high
inflation which increases the risks of stagflation and social unrest.

o Certain sectors such as automotive, transport or chemicals are more

likely to suffer.

o Coface forecasts a deep recession of 7.5% for the Russian economy

in 2022 and downgraded Russia’s risk assessment to D (very high).

o European economies are most at risk: at the time of writing, Coface

estimates at least 1.5 percentage point of additional inflation in 2022,
while GDP growth could be lowered by 1 percentage point. Together
with a complete cut of Russian natural gas supply, this could cost at
least 4 points of GDP, thereby leading EU GDP growth close to zero
– more probably in negative territory – in 2022.

THE CONFLICT THREATENS TO SQUEEZE ENERGY AND

COMMODITIES MARKETS FURTHER
Russia is the world’s 3rd oil producer, the 2nd natural gas producer and
among the top 5 producers of steel, nickel and aluminum. It is also the
largest wheat exporter in the world (almost 20% of global trade). On its
side, Ukraine is a key producer of corn (6th largest), wheat (7th),
sunflowers (1st), and is amongst the top ten producers for sugar beet,
barley, soya and rapeseed.
On the day the invasion began, financial markets around the world fell
sharply, and the prices of oil, natural gas, metals and food commodities
surged. Following the latest developments, Brent oil prices breached USD
100 per barrel for the first time since 2014 (125$/b at the time of writing),
while Europe’s TTF gas prices surged at a record EUR 192 on 4 March.
While high commodity prices were one of the risks already identified as
potentially disruptive to the recovery, the escalation of the conflict increases
the likelihood that commodity prices will remain higher for much longer. In
turn, it intensifies the threat of long-lasting high inflation, thereby increasing
the risks of stagflation & social unrest in both advanced & emerging
countries.

AUTOMOTIVE, TRANSPORT, CHEMICALS ARE THE MOST

VULNERABLE SECTORS

The crisis is obviously strongly impacting an already strained automotive

sector due to various shortages and high commodity & raw material prices:
metals, semiconductors, cobalt, lithium, magnesium…Ukrainian
automotive factories supply major carmakers in Western Europe:
some announced the stoppage of factories in Europe while other plants
around the world are already planning outages due to chip shortages.
Airlines and maritime freight companies will also suffer from higher
fuel prices, airlines being the most at risk. First, fuel is estimated to
account for about a third of their total costs. Second, European countries,
the US and Canada have forbidden the access to their territories to
Russian airlines and in turn, Russia has banned European and Canadian
aircrafts from its airspace. This means higher costs since airlines will have
to take longer routes. Eventually, airlines have little room for rising costs, as
they continue to face lower revenues due to the impact of the pandemic.
Rail freight will also be impacted: European companies are forbidden to do
business with Russian Railways which will likely disrupt freight activity
between Asia and Europe, transiting though Russia.
We also expect feedstock for petrochemicals to be more expensive, and
the soaring prices of natural gas to impact the fertilizer markets, hence the
whole agri-food industry.

Commodities soar

Oil and gas prices have surged over supply fears as Russia is one of the world's biggest
producers and exporters of the fossil fuels.
Brent North Sea crude, the international benchmark, stood at around $90 in February.
On March 7, it jumped to $139.13, close to a 14-year high and prices remain highly
volatile.

Gas prices have also skyrocketed, with Europe reference Dutch TTF leaping to an all-time high
at 345 euros on March 7.

The United States, Canada and Britain have announced Russian oil bans.

The European Union has avoided sanctions on Russia's energy sector as countries such as
Germany rely heavily on Moscow's gas supplies.

Other commodities massively produced in Russia have soared, including nickel and aluminium.

Auto industry supply chains face disruption ..

Food threat
UN chief Antonio Guterres has warned that the conflict could reverberate far beyond Ukraine,
causing a "hurricane of hunger and a meltdown of the global food system".

Russia and Ukraine are breadbaskets for the world, accounting together for 30 percent of global
wheat exports.

Prices of cereals and cooking oils have risen.

The UN's Food and Agriculture Organization says the number of undernourished people could
increase by eight to 13 million people over the course of this year and next.

The United States, India and Europe could cover wheat shortages. But it could be more
complicated to replace sunflower oil and corn, of which Ukraine is the world's number one and
number four exporter, respectively.
Markets rattled
Stock markets had started off 2022 on a good note as economies recovered from the Covid
pandemic and companies posted healthy results.

But the war has brought volatility to the markets while Moscow's stock exchange closed for
three weeks and only partially reopened on Monday.

Western sanctions have paralysed the Russian banking sector and financial system, while the
ruble has collapsed.

The measures include efforts to freeze $300 .. billion of Russia's foreign currency reserves held
abroad.

Russia now faces the risk of defaulting on debt for the first time in decades.

Moscow paid interest on two dollar-denominated bonds last week, giving the government some
breathing room until the next debt payments in the coming weeks.

Firms flee
Hundreds of Western firms have closed shops and offices in Russia since the war started -- due
to the sanctions, political pressure or public opinion.

The list includes famous names such as Ikea, Coca-Cola and MacDonald's.

Russian President Vladimir Putin has raised the threat of nationalising foreign-owned
companies.

Slower growth
The war threatens to be a drag on the global economic recovery from the Covid pandemic.

The OECD has warned that the conflict could inflict a one-percentage-point hit on global growth.

The IMF is expected to lower its growth forecast, which currently stands at 4.4 percent for 2022.