WTO WARNS THAT WAR IN UKRAINE PUTS GLOBAL TRADE AT RISK
On 11 April, the WTO Secretariat published the note ‘The Crisis in Ukraine: Implications of the war for global trade and development’, analysing the implications of the war in Ukraine for global trade and development. The war has not only created a humanitarian crisis of immense proportions but has also dealt a severe blow to the global economy, prompting WTO economists to reassess their projections for world trade over the next two years.
The WTO Secretariat projects that the crisis could lower global GDP growth by 0.7-1.3%. The note also projects that global trade growth this year could be cut almost in half from the 4.7% the WTO forecasted last October to between 2.4% and 3%.
While the shares of Russia and Ukraine in overall world trade and output are relatively small, they are important suppliers of essential products, notably food and energy. Both countries supplied around 25% of wheat, 15% of barley and 45% of sunflower product exports in 2019. Russia alone accounted for 9.4% of world trade in fuels, including a 20% share in natural gas exports.
Russia and Ukraine are also key providers of inputs into industrial value chains. Russia is one of the main suppliers globally of palladium and rhodium, key inputs in the production of catalytic converters for automobiles, supplying 26% of global import demand for palladium in 2019. Semiconductor production depends to a substantial extent on neon supplied by Ukraine. Disruptions in the supply of these inputs could hit car producers at a time when the industry is just recovering from a shortage of semiconductors, the note highlights.
Some regions will be more strongly affected by the war than others. Europe, the main destination for both Russian and Ukrainian exports, is likely to experience the brunt of the economic impact. Reduced shipments of grains and other foodstuffs will also boost prices of agricultural goods, with negative consequences for food security in poorer regions.
One of the longer-term risks is that the war could trigger a disintegration of the global economy into separate blocs. Economic sanctions could cause major economies to move toward ‘decoupling’ based on geopolitical considerations, with the goal of achieving greater self-sufficiency in production and trade. Even if no formal blocs emerge, private actors might choose to minimize risk by reorienting supply chains.
Source: World Trade Organization