Russia-Ukraine war poses biggest risk to world economy: Survey

A flash survey conducted by the think tank Oxford Economics spanning 165 big companies in the world, mostly from North America and Europe, consider the Russia-Ukraine war as the biggest threat to the world economy.

New Delhi: Russia's invasion of Ukraine has impacted the business sentiments around the world as crude prices have gone up and supply lines linking the two warring countries with the rest of the world economy are severely impacted. The unfolding situation, which shows no sign of abating, is being considered the biggest risk to the world economy as businesses have become pessimistic in their outlook, showed a survey.

After the start of the war, a flash survey conducted by the think tank Oxford Economics that covered 165 big companies in the world, mostly from North America and Europe, consider the Russia-Ukraine war as the biggest threat to the world economy. The survey showed that some 84% of businesses have become more negative about global growth prospects over the past month. More than half (55%) report becoming slightly more negative over the past month, with more than a quarter becoming significantly more negative (29%).

Sharp deterioration in business sentiment

Oxford Economics says its March flash survey, which was launched a week after Russia began its invasion of Ukraine, showed that the business sentiment has deteriorated markedly. “This represents the most widespread worsening of sentiment since we first asked this question in 2020, during the first coronavirus wave,” it said.

The survey, which was conducted early this month, revealed that businesses have become much more pessimistic about prospects for global growth in 2022. “The mean expectation has fallen by 1.3% since January - three times the size of the downward revision to our own baseline forecast. Around a quarter of respondents view risks to the global economy as heavily skewed to the downside,” said the think tank.

High inflation risk

According to the respondents, the war will not only impact the global economic growth this year but it will also push global inflation which is already at a record level in some countries. According to the survey, which covered 165 companies having a turnover of over $2 trillion, most of the respondents sharply revised their expectations for inflation this year with the expectation that it will increase by 1.5% this year.

In India, where the year-on-year rise in wholesale prices is in double digits for the last 11 months, it poses a fresh challenge for the government and policymakers as rising crude prices will further deteriorate the situation. What is even more worrying is that three-fifths of the respondents expect supply-chain disruption to persist into 2023. The Russia-Ukraine war comes at a time when the world economy was coming out of the supply disruptions caused by the outbreak of the highly transmissible Omicron variant of the Covid-19 virus which was discovered in South Africa in November last year.

In another survey conducted by the think tank in January this year, respondents saw only a 1-in-50 chance of the global economy contracting in 2022 but in the latest survey conducted after the start of the war, the perceived odds of a global contraction this year have gone up to 1-in-8.