Moody's: Russia-Ukraine Crisis Raises Risks For Global Economy

KUALA LUMPUR, March 5 (Bernama) -- Russia's invasion of Ukraine and the subsequent economic sanctions have increased the risks to the global economic outlook, said Moody's Investors Service. The ratings agency said the magnitude of the impact will depend on the length and severity of the crisis. "Escalation of the military conflict would put Europe's economic recovery at risk," said its vice-president and senior credit officer Kelvin Dalrymple in a report. “The rest of the world will be affected by commodity price shocks at a time when inflation is already high, and by financial repercussions from the sanctions against Russia and from financial market volatility.” Dalrymple said Russia and Belarus will feel the most direct impact of sweeping sanctions imposed by the US and its allies, with an indirect impact on foreign entities that do business with Russia. These developments could have “knock-on consequences for the global economy,” the agency said. Commodity price shocks will raise inflationary pressures, particularly in economies that are heavy importers of Russian commodities. “Since the invasion, oil prices have soared above US$100 per barrel. Russia is a big producer of metals including aluminum, platinum, copper and palladium and their prices have also climbed because of the crisis. “While other countries that produce these metals will benefit from higher prices, consumers will face higher costs as the increases are passed on to them,” Moody’s added. Russia and Ukraine dominate the global production of neon gas, a component in semiconductor manufacturing, which could further exacerbate chip shortages and supply problems in the auto industry, it noted. The two countries provide roughly 14 per cent of the world's wheat supply and 25 per cent of global exports; wheat and other grain prices have risen sharply following the invasion. The Moody’s report noted that global financial markets have been volatile since the invasion with geopolitical uncertainty, higher commodity prices, escalating sanctions and regional business disruptions weighing on market sentiment. “If this translates into a significant and extended squeeze on liquidity, it would weaken funding conditions for global high-yield issuers, and for emerging market countries that are reliant on global capital flows, some of which are already experiencing constrained access to financing,” it continued. “Against this backdrop, the dollar continues to strengthen. So far, however, credit spreads in the euro area have widened only moderately, and are still below the peak during the start of the pandemic.” -- BERNAMA