MacroscopeUkraine crisis comes at a very bad time for the world economy

Unless the crisis can be resolved quickly, expectations for global growth this year and next will take a dive

Major economies like the US and China will not be spared from the fallout, while Europe could be left vulnerable to financial instability

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Pedestrians wait to cross a road in front of a screen displaying commodity prices in Shanghai on February 7. The Ukraine crisis is likely to cast a shadow on global economic confidence. Photo: Bloomberg

Published: 4:30pm, 28 Feb 2022Updated: 1:53pm, 9 Mar 2022

The world has been through the wringer since the turn of the millennium, with the 2008 global crash, the European debt crisis and the Covid-19 pandemic, but the crisis in Ukraine could well change the economic landscape for a long time. The peace premium has just gone up in a puff of smoke and this is likely to cast a shadow over global economic confidence, just at the moment recovery optimism needed persuasion that the road ahead for sustainable growth would be smooth.

With market fear gauges like the Vix volatility index pushing higher and the appetite for risk plunging yet again, it’s a reasonable bet that consumer spending and business investment intentions will take a hit in the coming months.

Unless the crisis can be resolved quickly, expectations for global growth this year and next will take a dive. No one will be spared from the fallout and the major economies like the United States and China will feel their share of it.

The first major conflict on European soil since World War II has come like a bolt out of the blue. It’s a humanitarian disaster on a huge scale, and the shock effect on the global economy will be felt very quickly. Global confidence was already on a precarious footing, with the pandemic still taking its toll, world trade growth slowing significantly in recent months and the world’s major monetary authorities set to withdraw policy support.

The US Federal Reserve’s well-flagged intention to hike interest rates possibly as soon as March has not helped matters. In the last few months, with inflation on the rise and continuing supply chain shortages dragging on demand, doubts have already begun to creep in about the sustainability of global recovery going forward.

The International Monetary Fund has already downgraded its expectation for global growth this year to 4.4 per cent in its January forecast, chipping off 0.5 percentage points from its October 2021 projection of 4.9 per cent. There will be more to come as the Ukraine crisis unfolds, with Europe most at risk in such proximity to the conflict.