In the last two years, the global economy has struggled to deal with two "black swans": the coronavirus pandemic and the Russia-Ukraine war. The term "black swan" is defined as an event or a process that causes irreversible and radical changes in the world economy and politics. Currently, the pandemic is among the top 10 global risks, while regional conflicts place in the top five. These two "swans" have sent serious shock waves through the global system. Indeed, with the emergence of the coronavirus, we already knew that nothing would be the same again.

Clear warning signs

There have been irreversible impacts on global production, supply chains, trade, work life, housing and even tourism. The International Monetary Fund (IMF) is now pointing to the assessment that the Russia-Ukraine tension may fundamentally reshape the global economic order in the long run. The IMF, just like the Organisation for Economic Co-operation and Development (OECD), talks about a scenario that will affect the entire global economy by slowing down global growth and increasing inflation. According to the IMF, there is a great risk that, as tensions drag on, global growth will be undermined and prices will increase further, which means a major blow to the global economy.

So far, tensions, war or forced migration have all increased global food and energy prices; however, the IMF is now also focused on the disruption of trade in countries neighboring Ukraine and blockages in the supply chain and money transfers. Tension alone can lead to the erosion of self-confidence in the business world on a regional and global scale and drag investors into an atmosphere of extreme uncertainty. The IMF mentions that there may be a decrease in asset prices and unnecessary capital outflows from countries in the medium and long term.

Impact on other regions

The IMF also warned that the tension may increase food shortages in African and Middle Eastern countries that import a significant part of their wheat from Russia and Ukraine. It reminds us that blockages should not be ignored. It is noted that countries in the Caucasus and Central Asia, which have close trade and payment systems ties with Russia, will be more affected by the recession. Great attention should be paid to the Association of Southeast Asian Nations (ASEAN) countries, the IMF also says, underlining that new fuel subsidies in some Asia-Pacific countries may reduce the negative effects.

Likewise, the OECD stated that raising the public expenditures of member countries by five per thousand of their gross domestic product (GDP) can reduce the economic effects of the tension by half without causing an increase in inflation. It's true that Russia and Ukraine account for 2% of the global GDP; however, if the ongoing tension between the two countries is prolonged, the OECD predicts that the negative impact on the growth of the eurozone could be 1.4 points, and about nine per thousand for the U.S. Let's hope next week the world enters a cease-fire.