Ukraine war keeps biting economies even after two years

The Russia-Ukraine war is still biting the economies across the world, though it has been more than two years since the commencement of the conflict.

The barrage of western sanctions on Russia gave rise to an impression that the Russian economy would collapse anytime soon. But the reality is in stark contrast as the economy in Russia has shown a firm resilience and is doing comparatively better.

Rather, the other nations are grappling with enduring challenges posed by the war.

Almost all the nations have suffered, more or less, due to the longlasting war. The oil price surpassed the threshold of $100 per barrel immediately after the commencement of the war, sending shockwaves through energy-importing nations.

At the same time, the exchange rate of US dollars rose significantly, putting a large number of countries in a tight corner.

Both the developed and developing nations registered record inflation in the following months. Many countries, including Bangladesh were forced to limit imports, which eventually inflicted more hardships on the people.

Disruptions in food transport through the Black Sea due to the war compounded food inflation. The food price index rose to a record 159.7 points in March 2022 and remained above 150 in the next four months. In 2022, food prices worldwide reached the highest levels since the introduction of the FAO index in 1990.

However, Russia exhibited better economic growth than the US and Europe in 2023, despite the war and thousands of sanctions from the west. The Russian economy shrunk by 1.2 per cent in 2022, but it bounced back and grew by 3.6 per cent last year.

On the flip side, the United States posted a 2.5 per cent growth in 2023. There are significant inconsistencies in the size of these to economies, rendering it difficult to get a clear picture simply comparing the indicators.

The International Monetary Fund (IMF) forecast that Russia will see a 2.6 per cent economic growth in 2024, while its government forecasts a slightly lower growth rate of 2.3 per cent.

Two other giant economies, Japan and the United Kingdom, have slipped back into recession. They registered a shrinking trend in two quarters at a stretch.

It gave rise to a question if the largest economy, the US, too will face an economic recession.

While the effects of the Covid-19 pandemic may have been overcome relatively quickly, the effects of the war are enduring.

As there are different sanctions on Russian energy due to the war, other countries have no choice but to procure fuel at much higher prices. It intensified inflation, prompting the countries to raise their policy interest rate. But it slowed down the growth trajectory in the aftermath.

The World Bank predicts that global growth in 2024 will be the slowest since the pandemic, indicating that the world economy is still grappling with the repercussions of the war.

Salim Raihan, an economics department professor of Dhaka University, has warned of escalating tensions and potential ramifications on global trade and inflation.

He said, “As the geopolitical equations are evolving, tensions are unlikely to subside soon, rather it is feared to escalate. If the European countries increase their military expenses, the people will experience a waning purchasing power there. Europe is one of the largest destinations of Bangladeshi exports. Another issue is the Houthi attacks in the Panama Canal. It is hiking the shipping costs. Due to all these issues, the cost of raw materials collection may rise. It means there is a fear for inflation to rise further.”