It is obviously a massive shock, but incomparably smaller than the one suffered by Romania between the years 1990-2000, when a prolonged economic recession took place. Regarding Romania, the impact is the one defined by the indicators mentioned above. Emphasizing the great uncertainties created by the war, especially those related to the duration of sanctions, the document contains a wealth of important information on the economic situation and the outlook for the world, the Euro Area and Central and Eastern Europe. Annual inflation forecast is 9% in 2022 and 4% in 2023 and the unemployment rate is 5.6% this year and 5.5% next year. In the report presented at the April 2022 meeting of the International Monetary Fund (IMF) and the World Bank (WB), it is estimated that Romania’s economic growth will reach 2.2% in 2022 and 3.4% in 2023.
This hypothesis is confirmed by the international financial-monetary institutions, which have a balanced vision regarding the future evolution of the Romanian economy. Therefore, it can be assumed that the Romanian economy will be less affected, all things being equal. As an example, Romania has imported fewer raw materials from Russia and Ukraine in recent decades than France or United Kingdom and has exported fewer goods to these countries than Germany or Italy. This analysis is valid for all countries, but in different measures. The longer the war lasts and the sanctions applied to Russia will continue, the harder the economies of non-belligerent countries will find to have balanced growth because of the expensive and time-consuming adjustments applied on their production structure. Central Banks will continue to face the rise in inflation, but their problem remains the same as before the start of the war: reducing the inflation without preventing the economic recovery. It is supposed that in other countries, except Ukraine, whose infrastructure has been largely destroyed, and Russia, which we will explain in detail, the return of the economy to the pre-invasion status will only be delayed. The nature and the extent of the stagflation consequences depend on the duration of the phenomena mentioned before. This term refers to a paradoxical economic situation, characterized by job disappearance, rising prices, declining corporate profits, investment reduction and the widening of budget deficits. This coexistence of the reduction of the economic activity with the acceleration of inflation is called “stagflation” in the economic literature. On the other hand, rising prices reduce consumer purchasing power. Thereby, the decrease in the supply of basic raw materials and energy products will lead to a recession in the manufacturing industries, such as the automotive industry or electronic components industry. The invasion changed everything, because it led to a massive shock on the supply, which led to a multiple channel transmission and to the permanentization of effects. Those factors were considered as being temporary, likely to disappear once things stabilized and the production chains returned to normality. Those goods accounted for a good percentage of the exports of Russia and Ukraine, and the war led to an increase in the world prices for those goods.īefore the invasion, some economists announced about the risk of this stagflation, because of the price increase and the volatility of the world economic activity caused by the COVID-19 pandemic, climate change and the major ongoing restructuring in the world economy. This economic shock was strong enough to impact the demand in different sectors: fossil energy (oil, gas and coal), food (corn), chemical fertilizers (based on potassium and nitrogen) and industrial raw materials (nickel, titanium). When Ukraine was invaded by the Russian army, the world’s economy was already in a huge stagflation, not comparable to the one from 1973-1974. Even though it is too early to see the end of this war, some economic consequences are already visible. The Western world’s reaction was to apply severe economic sanctions, to impose penalties, mainly as deterrence.
The longer the conflict lasts, the larger the threats to world peace will become. The Russian invasion in Ukraine marked a new war in Europe, which started four months ago and whose end is not yet in sight.
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