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1 1 (May 12, 2022)

handle is hein.crs/govefsv0001 and id is 1 raw text is: Congressional Research Service Inforrming the legislative debato since 1914 May 12, 2022 Russia's 2022 War Against Ukraine: Global Economic Effects The Russian Federation's (Russia) renewed invasion of Ukraine in February 2022, and the increasing number of international sanctions that followed, have heightened congressional interest in understanding the implications of these developments for the U.S. and global economy. The war, which has already led to economic, security and humanitarian crises in the region, is causing wide-ranging spillover effects globally and is likely to hamper national economic recoveries from the COVID-19 pandemic. The overall impact will ultimately depend on the duration and fallout of the war and sanctions, and on policy responses. The trade disruptions, inflationary pressures, and security concerns have started to weigh on consumer and investor sentiment, reduce real incomes, and depress global demand for imports. If prolonged, the war could lead to a more widespread regional-and potentially global-economic recession and increase the risk of social unrest in both advanced and emerging economies. Members of Congress may monitor the situation and help inform potential U.S. economic policy responses. Overview Russia's war against Ukraine is having ripple effects across the globe and poses risks and challenges to the global economy that compound pre-existing ones created or exacerbated by the pandemic. Global trade tensions and, more recently, a surge in COVID-19 cases in China that has entire cities back in lockdown also add to global economic instability. Disruptions, and the potential risk that they could worsen, come at the same time that global supply chains are already under stress. In 2021, there was a surge in demand for physical goods that resulted from economic stimulus programs and a sharp shift in spending from services to consumer durables, while supplies remained restricted by pandemic-induced constraints on production and transportation. Russia's invasion and subsequent sanctions immediately placed additional strains on supply chains, and ensuing developments are likely to exacerbate supply-demand imbalances in the global economy. While projections of the economic impact are based on limited data and certain assumptions, many analysts agree that the war will result in a near-term reduction in global economic growth. According to preliminary estimates by the World Bank, the Ukrainian and Russian economies could contract in 2022 by 45% and 11%, respectively. While Russia and Ukraine's shares of the global economy are relatively small, the Organisation for Economic Cooperation and Development (OECD) and World Trade Organization (WTO) project that the war could reduce global economic growth by 0.7 to 1.3 percentage points (p.p.), push up prices globally by about 2.5 p.p., and slow global trade growth by up to 2.3 p.p. The economic impact is expected to be more severe and lasting in Europe than in the UInited Svates The effects of the war on the global economy are varied and complex and involve several factors. These include lives lost; mass displacement of people; disruptions to financial and business linkages; destruction of infrastructure; factory stoppages; shipping container shortages and blocked or disrupted transportation routes; market volatility; and the potential fragmentation of international financial and trade systems, as geopolitical considerations reduce global economic interdependence. Overall, these factors could potentially derail the post-pandemic global economic recovery and complicate matters for policymakers through two principal channels: (1) disruptions to international trade and supply chains, and (2) changes to commodity prices and related inflationary pressures. International Trade and Supply Chains Major disruptions to international trade and supply chains pose a risk to the global economy. While the direct impact of the war might be relatively limited, its indirect impact on the sourcing and movement of goods and services around the world could be significant. To date, a number of war- related events have disrupted supply chains or have raised the possibility of disruptions in the near term. These include a wide range of sanctions on Russia and enhanced export controls, plant stoppages, and restricted rail and sea transit routes across Europe and Asia. In addition, Russia has banned the export of certain manufactured goods, timber, and food grains. It also has reportedly considered, among other things, restricting certain hydrocarbon and mineral exports and nationalizing the assets of foreign-based firms that suspend or stop operations and leave assets behind. Shipping Constraints Major shippers, concerned about violating international sanctions or the safety of their crews, have halted or curtailed many of their services to and from Russia. The United States, United Kingdom (UK), and European Union (EU) have banned Russian-flagged ships from entering their ports (with some exceptions, including for energy-related cargos). Meanwhile, sanctions have taken much- needed capacity out of the global air cargo market and significantly increased cargo rates. Russia has closed its airspace to airplanes owned, registered, or controlled by more than 30 countries in retaliation for sanctions. As a result, cargo carriers now have to divert flights while also avoiding warzone areas. Some suppliers will need to use slower or more expensive modes of transportation. The shipping industry, which plays a major role in international trade and global supply chains, was facing a shortage of vessels and containers when international sanctions drove up crude oil prices, which further increased shipping costs. The situation is exacerbated by a shortfall in shipping crews due to the war. Some analysts expect the surge in container rates and insurance costs to continue to drive up freight costs worldwide. Public backlash abroad against U.S. and multinational firms operating in Russia, as well as concerns about staff safety and potential sanctions violations, have already led many foreign firms to exit the Russian market or cut ties with )s://crsreports.conqress.

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