How does global trade absorb the blows from the coronavirus and Ukraine?

First the coronavirus; now the military conflict in Ukraine. What is the impact on global trade? Our research department has published a report on this. The consequences of the renewed lockdowns in China are also included. In this article, we list the most significant consequences.

Firstly, we focus on the effect of the Russian invasion on global economic growth. We lowered the growth forecast for 2022 to +3.3% and for 2023 to +2.8%. Russia itself has suffered the severest impact. The country is entering a deep recession this year due to a decline of at least -8%.

Nearly two-thirds of our downward revision of global growth projections is owing to diminishing confidence and supply chain problems. The remaining growth loss is the result of higher input prices. Not only is global inflation increasing faster than previously thought, but higher inflation will also be more persistent. For 2022, we assume 6% inflation — almost 2% higher than previous estimates.

Should the conflict escalate further, this will lead to even stricter sanctions and counter-sanctions (including the energy supply). In such an unfavourable scenario, inflation will rise to 7.0%, while economic growth will fall to 2.5%. As a result, the global economy will enter a recession in 2023.

We expect global trade growth to decline from +6% to +4% in 2022. Although Russia's role in global trade is limited, exporters in Central and Eastern Europe, in particular, could suffer substantial losses. Important Russian export products are fertilisers, metals (e.g. iron, steel, aluminium, copper, nickel and tin) and foodstuffs (e.g. wheat). Automotive production, especially in Europe, is being impacted by shortages of metals and gases essential for the manufacture of semiconductors and other components.

Global trade is also struggling with the ongoing health restrictions in China in response to fresh COVID-19 outbreaks. Take the Port of Shanghai, the largest commercial port in the world. Long rows of container ships are waiting to be put to use. It's the same story at various other Chinese ports. This is part of the reason that problems persist within supply chains.

The trade sanctions against Russia have created extreme price volatility in oil and gas, wheat, and certain metals and industrial gases because of supply shortages. Natural gas prices in Europe are likely to remain high due to the heavy reliance on Russian gas. However, we expect the oil price to gradually decrease again in the coming months. Supply and demand will normalise.