The war in Ukraine could erase half of the growth in world trade expected in 2022 and, in the long term, lead to a “disintegration of the world economy”, warned the World Trade Organization (WTO) on Monday.
The WTO was due to announce its annual forecast for world trade in goods on Tuesday, but it finally published an initial analysis of the impact of the conflict in Ukraine on Monday evening, while maintaining the press conference on Tuesday with its director general, Ngozi Okonjo- Iweala.
According to this first study, the crisis should reduce the growth of world GDP to a level between 3.1 and 3.7% this year, while that of world trade should settle between 2.4% and 3%. In October, the WTO was expecting an increase of 4.7%.
The war in Ukraine has not only created a humanitarian crisis of immense proportions, but has also severely shaken the world economy. Since the Russian invasion on February 24, tons of grain have remained docked in Ukrainian ports such as Mariupol, a city bombarded and besieged by the Russian army for its strategic position.
According to the analysis carried out by the WTO Secretariat, “the bulk of the suffering and destruction is felt by the people of Ukraine, but the costs in terms of reduced trade and production are likely to be felt by people around the world in due to rising food and energy prices as well as reduced availability of goods exported from Russia and Ukraine.
While Russia’s and Ukraine’s shares in total world production and trade are relatively small, both countries are important suppliers of essential commodities, including food and energy.
According to the WTO, the two countries distributed in 2019 around 25% of the world’s wheat, 15% of barley and 45% of sunflower. Russia alone accounts for 9.4% of world fuel trade, a share that rises to 20% for natural gas.
Moscow and Kyiv are also “key suppliers of inputs in industrial value chains,” the WTO says in its report. Russia is thus one of the world’s main suppliers of palladium and rhodium, used in the automotive industry, accounting for 26% of global import demand for palladium in 2019. Semiconductor production also depends, in a large extent, neon which is supplied by Ukraine.
Europe, the main destination for Russian and Ukrainian exports, is expected to bear the brunt of the economic impact, according to the WTO. But the reduction in exports of cereals and other foodstuffs will drive up the prices of agricultural products, with negative consequences for the food security of the poorest regions.
Africa and the Middle East are the most vulnerable regions according to the WTO, as they import more than 50% of their grain needs from Ukraine and Russia.
In addition, the WTO warns, “one of the longer-term risks is that the war could trigger a disintegration of the global economy into separate blocs,” which would be organized according to geopolitical considerations. Such a so-called “decoupling” scenario would be “very costly for the global economy, especially for the less developed regions”.
Globally, this could reduce GDP by around 5% in the long term, particularly affecting emerging countries, according to the report, which notes that the decline could be even greater.