The two countries accounted for 2.5 percent of world merchandise trade and 1.9 percent of world GDP in 2021. UNDP (2022) estimates that if the war deepens and lasts, up to 90 percent of Ukraine's population can deal with poverty and vulnerability to poverty. Meanwhile, Ukraine accounted for 0.3 percent of world exports and 0.2 percent of world GDP.
Africa and the Middle East are the most vulnerable regions, as they import more than 50 percent of their grain needs from Ukraine and/or Russia. Russia accounts for 9.4 percent of the world's fuel trade, including a 20 percent share of the world's exports of natural gas. Ukraine alone accounted for 49 percent of Tunisia's wheat imports and 31 percent of Ethiopia's.
Ukraine is responsible for 2.2 percent of global steel shipments, but is more dominant in some markets (see Figure 4). Russia is the largest producer of palladium, supplying 26 percent of global import demand in 2019, with higher shares in the United States (43 percent), Japan (45 percent) and the Republic of Korea (38 percent, see Figure 4). Russia is also a major producer of rhodium, supplying 7 percent of global demand, with high shares for Italy (34 percent), the Republic of Korea (23 percent) and Switzerland (20 percent).
Ukraine supplies more than 90 percent of U.S. semiconductor-grade neon, which is essential for lasers used in chip manufacturing (Yoon, 2022).
Economic impact of sanctions on Russia
WTO research is currently trying to identify products as potential bottlenecks in global supply chains. These products are exported from only a small number of countries or have extremely high geographic market concentration (eg some semiconductors, mobile phones, soybeans). This means that for other products in the medium term alternative suppliers should be able to fill the gaps in the market caused by the reduction in supply from Russia and Ukraine.
For more processed goods, such as wire harnesses, it is easier to relocate production, as multinational companies have plants outside the affected region that can increase production. Sunflower products (combined 45 percent of the global market, including a 73 percent share for crude sunflower oil). The ultimate impact of these measures is unclear, given the fungible nature of these commodities in global markets.
This could lead to a realignment of inventories in the short term, with a limited impact on global output. Over the long term, reduced energy exports from Russia could be offset by oil production in other countries and greater reliance on renewable energy. Some Russian banks and companies involved in the oil trade (eg Sberbank, Gazprom) have yet to be banned from the SWIFT system.
Russian companies could also use the Chinese Cross-Border Interbank Payment System (CIPS), but this only applies to transactions in renminbi. Individuals (not companies or banks) may be able to use exchange offices, but this is extremely expensive and not suitable for large transactions. Finally, Russia could resort to bartering with some trading partners, but this would be extremely costly and highly inefficient.
The increase in Russian oil and natural gas prices is expected to increase eurozone inflation by 1.5 percent in 2022 and reduce GDP growth by 1 percent.8 Replacing Russia's oil and natural gas supplies with alternative energy sources may not be possible in the future. in the short term, but the crisis can provide an additional impetus to accelerate the green transition towards reduced dependence on fossil fuels. Regarding commercial sanctions, a number of countries have proposed withdrawing Russia's Most Favored Nation (MFN) status. It is not yet clear what this would mean in terms of applied tariffs levied at the border.
Many international firms are retreating from the Russian
In theory, these companies can still process payments related to energy exports, but many international traders may still be reluctant to handle this.
Effects of the crisis on world trade and output from simulations
Direct effects of the crisis and related sanctions may reduce
Projections for Ukraine indicate that its GDP could
25 per cent compared to the pre-crisis outlook,
2 Scenario analysis of the income and trade effects
Description of the five scenarios
Simulation results
4 Imposition of food export restrictions by Russia and Ukraine (4(a)) and developing countries (4(b)). In the WTO global trade model, shocks are imposed on trade costs, productive capacity (factor supply) and domestic absorption, while commodity prices and (real) exchange rates are endogenous. Figure 7 shows that the projected decrease in GDP in Ukraine is an order of magnitude higher than in other regions.
This is because the expectation is that other regions will be affected more indirectly through an increase in the risk premium and a decrease in business and consumer confidence. Sanctions causing concerns in the financial sector are expected to have the biggest impact on Russia, while tariff increases on non-fossil fuel goods (removal of MFN status) would have a more limited impact. Scenario 2(b) shows that the loss in Russian revenues due to the increase in MFN tariffs on manufactured goods would be limited, with losses increasing from 1.9 percent to 2 percent.
The effect is limited because other sanctions (i.e. the increase in transaction costs due to the SWIFT. The projected impact of most sanctions on Western economies is smaller than for Russia, although still significant in the short term. Focusing on the European Union , most of the real income losses are expected to come from the increases in trade costs with Russia and the associated losses of export sales (Scenario 2(a), -0.7 percent).
Due to the important role of Russia and Ukraine in supplying food to specific regions, especially Africa, the war will lead to rising food prices and export restrictions would put strong upward pressure on food prices. Ukraine ranks highest in the Middle East and North Africa (MENA) and Sub-Saharan Africa (both the least developed and other regions).5. Therefore, the projected increase in food prices in this assessment note is in the same range as in the FAO study.
In the medium term, price increases could therefore be more moderate as regions shift to other sources of supply.8 However, export restrictions could also be even greater than currently modeled, leading to more dramatic price increases. Third, regions with sufficient food stocks, such as wheat, could stabilize food prices in the most vulnerable regions by releasing some of their stocks. Such an outcome would be costly for virtually all economies, as global GDP will be about 5 percent lower in the long run.
Ukraine: Impact of the war Destruction of production factors
As of 9 April, 4,503,954 refugees had fled Ukraine
Russia: Sanctions by a number of regions
The European Union said it was considering suspending Russia's MFN treatment at the WTO over the war in Ukraine. Central banks in Western economies have frozen $600 billion of foreign exchange reserves, which have contributed to a sharp devaluation of the ruble.
All regions (except for Russia and Ukraine): Global macroeconomic
All regions: Food export restrictions and release of food stockpiles
All regions: Long-run decoupling
It agreed to this measure with thirteen other WTO members.17 This would allow these countries to raise tariffs or impose quotas on Russian imports. It is assumed that rates will increase by 32 percent, based on the global average rate increase, if rates move to a non-cooperative level (Nicita et al., 2018). The resulting financial problems in the Russian economy are modeled by a 5 percent reduction in domestic absorption.
1 The WTO Global Trade Model is a computable general equilibrium model, focused on the real side of the global economy, that models global trade relations. Very similar to new quantitative trade models, its advantage is the precise modeling of trade relations at a sectoral level, taking into account intermediate linkages. To focus on short-term effects, the substitution elasticities of trade between different source countries are reduced to 0.5.
2 These channels are not modeled explicitly, but captured by a reduction in domestic absorption (consumption plus investment), leading to lower capacity utilization. 4 The simulations focus on the short term, as it is assumed that there is limited possibility of substitution between different sources of supply. 5 This figure combines information on wheat import shares from the Trade Data Monitor for 2021 with the share of private household consumption of wheat imported from data projected to 2021 based originally on the GTAP database, version 10, for 2014.
6 The simulations in this section are based on wheat import shares using import shares of wheat close to actual import shares. Russia has imposed an export ban on many food items, such as wheat, but exports under existing quota will still be possible. Ukraine has banned the export of many food items, but only wheat will be subject to restrictions.
8 As mentioned above, a short-run perspective with an elasticity of substitution between imports of 0.5 is chosen. This is based on a 25-40 percent drop in GDP resulting from conflicts in countries such as Iraq, the Syrian Arab Republic and Yemen. 17 Albania, Australia, Canada, Iceland, Japan, North Macedonia, Republic of Moldova, Montenegro, New Zealand, Norway, Republic of Korea, United Kingdom and United States.
3 Multilateral system: mitigating the effects of the crisis
The WTO plays an important role in monitoring and providing
The crisis in Ukraine is
Ensuring that trade flows smoothly and predictably is crucial to mitigate
The WTO provides an important forum where countries can convene and
The WTO can play an important role in negotiations
4 Way forward and policy recommendations
Multilateral cooperation is key, for all governments to
IMF International Monetary Fund LDC Least Developed Country LLDC Landlocked Developing Country MENA Middle East and North Africa MFN Most Favored Nation. OECD Organization for Economic Co-operation and Development SIDS Small Island Developing States. 2019), “Potential Economic Effects of a Global Trade Conflict: Projecting the Medium-run Effects with the WTO Global Trade Model”, Staff Working Paper ERSD-2019-04, Geneva: WTO. 2022), "Leoni ramps up wire harness production in Ukraine amid threat of Russian missile attacks" (Automotive News Europe, 23 March 2022). Food and Agriculture Organization of the United Nations (FAO) (2022), “The Importance of Ukraine and the Russian Federation to Global Agricultural Markets and Risks Related to the Current Conflict”, Briefing Communication, Rome: FAO.
Assessing Ukraine's Role in European Value Chains: A Gravity Equation Using Economic Complexity Analysis”, Researcher and Graduate Student at CID Working Paper no. International Monetary Fund (IMF) (2022), World Economic Outlook Update: Burden Growth, a Disruptive Recovery and High Inflation, Washington, D.C.: IMF. Organization for Economic Co-operation and Development (OECD) (2022), Economic and Social Impacts and Policy Implications of the War in Ukraine, OECD Publishing, Paris. 2022), "Ukraine ports to remain closed until Russian occupation ends - maritime administration".
Simulations from the WTO Global Trade Model indicate that global GDP and trade growth could be reduced by up
This note further shows that if the war were to cause a disintegration of the global economy into separate