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The potential for a global economic recession intensifies

  Since the outbreak of the conflict between Russia and Ukraine, the United States and its allies have imposed the harshest sanctions on Russia. As sanctions continue to increase, Russia’s countermeasures are also escalating. The impact of the Russian-Ukrainian conflict on the world economy is gradually emerging and deepening, and the external environment for China’s economic development has become more severe and complex.
  Worsening the global inflation situation and exacerbating the global supply chain crisis. Both Russia and Ukraine have strong resource endowments and occupy a special position in the global geoeconomic pattern. The Russian-Ukrainian conflict superimposed on the sanctions imposed by Europe and the United States on Russia has directly impacted the global commodity market, resulting in sharp fluctuations in commodity prices. The conflict has also increased the vulnerability of mid- and downstream supply chains, pushing up global inflation. The long-term and escalation of US-Western sanctions and Russian counter-sanctions will accelerate changes in the way the global economy operates, and the process of globalization will face greater uncertainty.
  Commodity prices continued to climb, worsening global inflation. Both Russia and Ukraine are major suppliers of global commodities. The conflict between Russia and Ukraine has caused the supply of oil, natural gas, grain, industrial metals and other commodities to shrink, prices to rise, and inflationary pressures to accumulate, further exacerbating the problem of excess demand and insufficient supply in the world under the epidemic. The National Economic and Social Research Institute (NIESR) estimates that the conflict will increase global inflation by 3% and 2% in 2022 and 2023.
  First, energy prices jumped. As the United States and Europe announced a ban on the import of Russian oil and natural gas, the market’s panic about the energy supply side has been accumulating, and oil and natural gas prices have soared and fluctuated dramatically. In the nine trading days since March, Brent and U.S. West Texas Intermediate (WTI) futures surged to $139.13 a barrel and $130.50 a barrel, hitting a 14-year high, with prices up 41.6%. The benchmark Dutch TTF front-month natural gas contract soared nearly 80% at one point, breaking the 330 euro/MWh mark.
  Second, disrupt the international food supply. Russia and Ukraine are the world’s main production bases for grain, and their wheat exports account for 29% of the world’s total. Some agricultural production areas in Ukraine are in conflict areas, and the farming and harvesting of agricultural products in these areas will be affected to varying degrees, exacerbating the shortage of global food supply. The paralysis of logistics in Black Sea ports caused by the conflict will also increase the risk of supply chain disruptions, pushing up food prices that have been rising since the outbreak. A few days ago, the main US wheat futures prices hit a 14-year high. Food shortages have become a major cause of global stagflation.
  Third, the prices of some industrial metals have skyrocketed. Russia is a major global exporter of nickel, palladium, aluminum and platinum, and Ukraine is a major exporter of neon gas, a semiconductor material. The tension between Russia and Ukraine disrupted the raw material market. Copper and aluminum hit record highs in both Asian and London markets. The London Stock Exchange (LME) copper price once climbed to a record high of $10,845 per ton, and the price of LME spot palladium rose 14%. %, and LME nickel futures climbed to a record high of $101,365 per ton. Market liquidity has deteriorated sharply, seriously deviating from fundamentals, causing cyclical pressures on the energy, semiconductor, and automobile manufacturing sectors.
  The global supply chain crisis is spreading, affecting many industries. On the one hand, shipping in the Black Sea has been paralyzed, which has a great impact on the international transportation industry. Since the outbreak of the conflict, many Ukrainian ports have been closed, and sea, land and air transportation from Ukraine have all been paralyzed or restricted. The world’s three largest container shipping companies – Mediterranean Shipping Company (MSC), Maersk (Maersk) and CMA CGM Group (CMA CGM) have all suspended Russian freight services due to sanctions from the United States and Europe. The United Kingdom, Canada and other countries have announced that Russian ships are prohibited from entering ports. The risk of port logistics paralysis is gradually expanding. Supply chain issues have been compounded by the conflict, which has caused sharp increases in ocean and air freight prices.
  On the other hand, the risk of delivery of raw materials has increased, affecting the security of global trade. The normal trade and delivery of raw materials are delayed or cancelled due to conflicts or sanctions from the United States and the West, which directly affects the manufacturing of products in the middle and lower reaches, affecting many industries such as energy, semiconductors, electric vehicles, agriculture, shipping and air transportation. The shutdown of neon gas in Ukraine has exacerbated the global “core shortage” crisis, forcing mobile phone manufacturers and others to cut production. The removal of seven Russian banks from the Society for Worldwide Interbank Financial Communications (SWIFT) by the United States and the West has also resulted in a decrease in the efficiency of settlement and settlement of cross-border trade.
  Sanctions and counter-sanctions continue to wrestle, accelerating the adjustment of the international financial system. The Russia-Ukraine conflict is a large-scale geopolitical conflict in the in-depth development of globalization. The United States and its allies continue to escalate economic sanctions against Russia, severely impacting global multilateral economic and trade arrangements, dampening the process of globalization, and forcing Russia to further distance itself from the global economic and trade system.
  Since the outbreak of the conflict, the United States and Europe have launched five rounds of economic sanctions on Russia. Compared with the sanctions imposed by the West on Russia after the Crimea incident in 2014, the scope of the main body of the sanctions has been significantly expanded, and the intensity of the sanctions has increased rapidly. The removal of some Russian banks from the SWIFT payment system will seriously affect Russia’s foreign trade and economics; restrictions on the central bank of Russia The use of foreign exchange reserves is a direct hit to the heart of Russia’s finance, which will have a global impact on Russian banks’ ability to make international payments, balance the foreign exchange market, and even adjust domestic inflation and promote economic stability; the United States announced the cancellation of the “most favored nation treatment” for Russia, Allowing bans on imports of Russian goods or imposing punitive tariffs on Russian goods severely undermines the effectiveness of the WTO. In response to the ever-increasing sanctions by the United States and the West, Russia’s countermeasures are also escalating. Under the perennial economic sanctions from the West, Russia has established a resilient economic system. It can be expected that the struggle between sanctions and counter-sanctions will continue to tear apart the process of globalization, weaken the dominance of the US dollar, lead to more “fragmentation” of the global financial system, and diversify or accelerate the progress of the international monetary system.
  Russia’s economy may fall into a deep recession. The impact of U.S.-ally-allied sanctions on Russia’s economy is already evident. First, oil and gas revenue has dropped sharply. According to data from the Russian Ministry of Finance, Russia’s March oil and gas sales revenue was about 488 billion rubles, 38% lower than expected. As the United States and the United Kingdom and other countries ban Russian energy imports and Europe accelerates the implementation of green energy strategies, Russia’s oil and gas revenue may face the risk of long-term erosion. Second, the sanctions have made more than 40% of Russia’s foreign exchange reserves unusable, and the coupon payments of Russia’s latest batch of sovereign bonds have been forced to suspend, increasing the risk of historic default. Third, sanctions triggered financial turmoil in Russia and the ruble plummeted. As Elson Mobil, BP, Apple, Microsoft and other large energy companies and multinational technology companies withdrew from the Russian market, the Russian financial market was violently turbulent. MSCI (MSCI Emerging Markets Index) even said that it will remove Russian stocks from its widely tracked emerging market index, which will deal a major blow to Russian listed companies and trigger macroeconomic chaos in Russia. Fourth, the sovereign credit rating declined. The three major international credit rating agencies, Standard & Poor’s, Fitch and Moody’s, successively downgraded Russia’s sovereign credit rating, which worsened Russia’s fiscal financing environment. Russia’s central bank survey expects Russia’s gross domestic product (GDP) to fall by 8% in 2022 and inflation to rise to 20%. The Institute of International Finance (IIF) predicts that Russia’s GDP will fall by about 15%. The prolonged conflict between Russia and Ukraine and the prolonged sanctions against Russia will further deteriorate the Russian economic structure and increase the risk of stagflation.
  Ukraine’s economy has been hit hard and it is difficult to play its role as a regional trade hub. Russia’s military action against Ukraine directly destroyed Ukraine’s economic and financial system. Ukraine’s First Deputy Prime Minister and Minister of Economy Yulia Sveridenko said that the Russian-Ukrainian conflict has caused losses to Ukraine of $564.9 billion and is still increasing. Ukraine’s Ministry of Economic Development and Trade estimates that Ukraine’s GDP may fall by 40% in 2022. The International Monetary Fund (IMF) expects Ukraine’s economy to shrink by 25% to 35%. Millions of refugees crossed the border into European countries including Poland, Moldova, Slovakia and Hungary during the month-long conflict, sparking the biggest refugee crisis in Europe since World War II.

  The prospects for economic recovery in Europe are bleak. The Russian-Ukrainian conflict has put further pressure on the already weak European economic recovery. One is the jump in energy prices, pushing up inflation. Affected by rising commodity prices such as energy and food, inflation in the euro zone soared to 5.8% in March, hitting a record high for five consecutive months. European Central Bank (ECB) President Christine Lagarde believes that inflation in the euro zone is likely to exceed 7%. The second is to intensify the pressure on the European supply chain. Europe relies heavily on Russian supplies for fuel and raw materials, and imports 25% of its oil and 45% of its natural gas from Russia. If Russia “kills” Europe, the European economy will suffer a severe blow. According to ECB estimates, if the European natural gas supply gap reaches 10%, the GDP of the euro area will lose 0.7%. The third is to disrupt the rhythm of the normalization of the ECB’s monetary policy and affect the medium and long-term development of the European economy. The conflict between Russia and Ukraine has caused the ECB to be caught in a “dilemma”. It needs to prevent a sharp rise in inflation and maintain the moderate liquidity required for economic growth. The European economic recovery is even more difficult. The OECD puts the negative impact of the conflict on the euro zone economy by as much as 1.4 percentage points. The Economist has cut its 2022 European economic growth forecast to 2% from 3.9%.
  The U.S. economy will benefit greatly in the short term, but in the long run, it will erode the hegemony of the U.S. dollar. U.S. and Western sanctions against Russia have further concentrated capital in the U.S. dollar. Since the outbreak of the conflict, the U.S. dollar index has surged 3% to a 21-month high, and the U.S. dollar has once again become the main safe-haven currency and the preferred currency for liquidity. However, although the dollar index continued to rise, the domestic inflation situation in the United States has not been eased. According to data released by the U.S. Department of Labor, the consumer price index (CPI) rose by 8.5% year-on-year in March this year, and the increase continued to hit a 40-year high. U.S. sanctions against Russia using U.S. dollar hegemony as a financial weapon will inevitably push up the U.S. balance of payments deficit and gradually weaken global confidence in the U.S. dollar. Moreover, the sanctions will further damage the global industrial chain and drag down the recovery of the US economy and the global economy. The OECD believes that the conflict between Russia and Ukraine will drag down the US economy by 0.9 percentage points. Goldman Sachs once again lowered its 2022 U.S. economic growth forecast to 2.9%, saying the probability of a U.S. recession in 2023 is as high as 35%.
  Exacerbating the external pressure on China’s economic development. China has good trade relations with Russia and Ukraine. In 2021, China-Russia and China-Ukraine trade volume will be about 147 billion US dollars and 19 billion US dollars respectively. Chinese investment projects in Ukraine exceed $1 billion. The conflict between Russia and Ukraine will have an impact on the prospects of economic and trade cooperation between China and Russia and China and Ukraine.
  First, fluctuations in commodity prices have a short-term negative impact on my country’s imports. Affected by the conflict between Russia and Ukraine and Western sanctions, Chinese investment projects in Russia have stagnated due to financing, remittance and other issues, and the ruble has plummeted, increasing the exchange rate risk during settlement; Chinese investment in Ukraine, contracted projects, and participated in financing projects have also suffered greatly. direct and indirect losses. The second is the expansion of sanctions, threatening my country’s economic interests. The sanctions imposed by the United States and the West on Russia have reduced China’s exports of high value-added products such as mobile phones and computers to Russia, and the quality and scale of Sino-Russian trade will decline. If the sanctions are extended to the Eurasian Economic Union countries and countries along the “Belt and Road”, Chinese companies may encounter more joint and secondary sanctions, and my country’s economic interests will suffer greater losses.

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