RUSSO UKRAINE WAR AND ITS PRFOUND IMPACTS ON THE U S. ECONOMY IN PERSPECTIVE OF SUPPLY CHAIN DISRUPTIONS, RISING COSTS, INFLATION AND ULTIMATELY THREAT OF RECESSION.
Key points:
a. Russia is the world largest global wheat exporter, accounting for more than 18 percent of international exports.
b. In 2019, Russia and Ukraine together exported more than a quarter (25.4 percent) of the world’s wheat, according to the Observatory of Economic Complexity (OEC).
c. The Russo-Ukraine war has had profound impacts on the U.S. economy, particularly through supply chain disruptions, rising costs, inflation, and the threat of recession. Here's a deeper look into these aspects:
Supply Chain Disruption:
The war has significantly disrupted global supply chains, affecting the flow of goods and raw materials. Key industries such as energy, food, and semiconductors have been particularly impacted¹. For instance, the war has led to shortages and delays in the supply of wheat, corn, and other essential commodities². This disruption has caused bottlenecks and inefficiencies, leading to higher costs for businesses and consumers alike¹.
Rising Costs and Inflation:
The disruption in supply chains has contributed to rising costs across various sectors. Energy prices, in particular, have surged due to the reduced supply of oil and gas from Russia, one of the world's largest energy exporters¹. This increase in energy costs has a cascading effect, raising prices for transportation, manufacturing, and ultimately consumer goods². The overall inflation rate has been pushed higher, with the U.S. experiencing significant price increases in essential goods³.
High Interest Rates:
To combat the rising inflation, the Federal Reserve has implemented a series of interest rate hikes¹. Higher interest rates are intended to cool down the economy by making borrowing more expensive, thereby reducing consumer spending and business investment¹. While this approach aims to control inflation, it also poses the risk of slowing economic growth.
Threat of Recession:
The combination of high inflation and rising interest rates has heightened the risk of a recession⁴. As borrowing costs increase, both consumers and businesses may cut back on spending, leading to reduced economic activity. Additionally, the ongoing supply chain issues and elevated costs continue to strain businesses, potentially leading to layoffs and further economic slowdown⁴.
In summary, the Russo-Ukraine war has created a complex economic environment for the U.S., marked by supply chain disruptions, rising costs, inflation, and the looming threat of recession. These factors are interconnected, creating challenges for policymakers and businesses alike.
Source:
(1) Russia-Ukraine war impact on supply chains and inflation - KPMG. https://kpmg.com/us/en/articles/2022/russia-ukraine-war-impact-supply-chains-inflation.html.
(2) Immediate and long-term impacts of the Russia-Ukraine war on supply chains. https://kpmg.com/us/en/articles/2022/impacts-russia-ukraine-war-supply-chains.html.
(3) How is the war in Ukraine impacting the global supply chain?. https://www.weforum.org/agenda/2022/07/ripple-effects-from-russia-ukraine-war-test-global-economies/.
(4) World Bank warns of recession risk due to Ukraine war - BBC. https://www.bbc.com/news/business-61723643.
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