One year on from the Russian invasion of Ukraine, the ramifications for the world economy are still very much to the fore.
A surge in energy and food prices in the months following the outbreak of hostilities in Eastern Europe exacerbated the pandemic-related supply chain disruptions and pushed up global inflation sharply. While energy and food prices have since moderated, the second-round impacts on the costs of goods, services and wages have kept inflation elevated, forcing central banks to aggressively raise interest rates in the second half of last year.
The tightening in financial conditions on the back of rate hikes, as well as increased energy costs, have weighed on global growth, especially in Europe, which was particularly dependent on Russia’s gas exports.
While the eurozone and the UK narrowly escaped a recession in the fourth quarter of 2022, most economists still expect a mild economic contraction or at best very weak growth for the major European economies this year.
Oil prices have largely fallen back to pre-war levels as the market worries about weaker demand in developed economies. Natural gas prices have declined below January 2021 levels, thanks to a milder than expected European winter.
Food prices, measured by the UN's FAO World Food Price Index, were also down year on year in January 2023, and this should provide some relief to consumers and help to bring down headline inflation in the coming months.
However, the relief from energy prices may be temporary.
As China’s economic activity normalises following the relaxation of zero-Covid policies, demand for energy from China is expected to rise significantly over the year.
Meanwhile, supply remains constrained by the lack of investment in capacity and — since the Ukraine war — sanctions on Russian energy exports.
Emirates NBD expects oil prices to rise above $100 in the second half of this year, which will complicate central bank policymaking as it implies inflation may start to accelerate at a time when many in the market expect the Fed to start cutting rates.
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Supporters hold a Ukrainian flag at a solidarity march to mark the first anniversary of the Russian invasion of Ukraine, in Budapest, Hungary. Reuters -
A protest to mark the one-year anniversary of the Russian invasion of Ukraine, in Berlin. Reuters -
Supporters in front of Helsinki Cathedral during Light for Ukraine candlelight memorial event at Senate Square in Helsinki, Finland. Reuters -
Representatives stand for a moment of silence during the United Nations Security Council meeting on the maintenance of peace and security of Ukraine at the UN headquarters in New York. AFP -
Britain's Prime Minister Rishi Sunak and his wife Akshata Murty, with Ukrainian ambassador to the UK Vadym Prystaiko, centre, his wife Inna and members of the Ukrainian Armed Forces outside 10 Downing Street in London, as they observe a minute's silence. AP -
The Portuguese Parliament is lit with the blue and yellow of the Ukrainian flag, in Lisbon AP -
The Tokyo Metropolitan Government building is lit with the Ukraine national flag colours. Getty Images -
Supporters carry Ukrainian flags during a demonstration in Bangkok. EPA -
Ukrainian volunteers take part in prayers and observe a minute of silence, in south-east England. Getty -
Protesters near the Russian embassy in Seoul, South Korea. EPA -
People lay flowers at a monument of Ukrainian poet, writer, artist, public and political figure Taras Shevchenko, in Almaty, Kazakhstan. AFP -
The Eiffel Tower in Paris is lit up in the colours of Ukrainian flag. EPA -
Paris Mayor Anne Hidalgo speaks alongside the Ukrainian ambassador to France, Vadym Omelchenko, during the event. AFP -
Watching video-mapping on the Czech Interior Ministry building, in Prague. EPA -
A woman expresses her solidarity with Ukraine at the Czech National Theatre, in Prague. EPA -
Activists place candles forming the peace sign in front of the Brandenburg Gate, in Berlin. AP -
A police officer raises the Ukrainian flag in front of the state parliament of Saxony-Anhalt in Magdeburg, Germany. AP -
A Vilnius University building is illuminated in blue and yellow in support of Ukraine, in Vilnius, Lithuania. AP -
Ukrainian flags placed over the graves of fallen Ukrainian soldiers in a military cemetery in Kharkiv, north-eastern Ukraine. EPA -
A commemoration event with a light installation at the Field of Mars cemetery where hundreds of Ukrainian soldiers are buried, in Lviv, western Ukraine. Getty -
Friends and relatives of fallen Ukrainian soldiers take part in a prayer as Rays of Memory illuminate the night sky over Lychakiv military cemetery in Lviv. EPA -
Rays of memory illuminate the sky over Lychakiv military cemetery in Lviv. EPA -
The National Opera of Ukraine building illuminated by Swiss artist Gerry Hofstetter in the colours of the Ukrainian flag, in Kyiv. Getty -
A woman takes selfies in front of The National Opera of Ukraine, illuminated by Swiss artist Gerry Hofstetter. Getty -
A candlelit vigil in front of the Russian consulate, in New York. Reuters -
Candles lit outside the Russian consulate in New York during a vigil to commemorate children killed in Ukraine. AFP -
A silent candlelit vigil in New York. Reuters -
A Trafalgar Square vigil organised by the Ukrainian and US embassies in London. AP -
A vigil for Ukraine at Trafalgar Square in London. Reuters -
The Trafalgar Square vigil. Reuters -
Crowds gather at Trafalgar Square. AP -
The Ukrainian ambassador to the UK, Vadym Prystaiko, addresses the London vigil. Reuters -
British Defence Secretary Ben Wallace speaks at the vigil. PA -
Actress and activist Helen Mirren addresses the London vigil. PA -
Teddy bears and other toys left by Ukrainian refugees and members of the Avaaz global activist network at Schuman Roundabout, in front of the European Commission, in Brussels. AP -
The EU Council and Commission buildings illuminated in the colours of the Ukrainian flag. EPA -
Governor of the National Bank of Ukraine Andriy Pyshnyi holds banknotes marking the first anniversary of Russia's invasion on Ukraine, in Kyiv. Reuters -
Supporters gather at St Mary's Cathedral Square during the 365 Days Strong rally and candlelight vigil in Sydney. Getty -
France's ambassador to Ukrain Etienne de Poncins, left, and the French Culture Minister Rima Abdul-Malak visit Independence Square in central Kyiv. AFP
Indeed, the economic data since the start of the year suggests that while headline inflation has slowed, the pace of decline may not be as quick as had been expected a couple of months ago, and central bankers are likely to remain hawkish for the time being.
The issue of energy security more broadly has also become more prominent in the wake of the war and is likely to have longer term consequences for investment. In response to EU sanctions, Russia reduced supplies of natural gas to Europe last year, pushing up prices and risking a shortage over the winter.
The EU moved quickly to diversify its energy imports, securing new supplies of LNG but also launching a €300 billion ($318 billion) programme to increase renewable energy and to encourage greater efficiency in fuel usage. The shift towards non-hydrocarbon, alternative energy has become imperative, not just to tackle climate change but to ensure that economies have more secure and reliable energy supplies.
Despite rising interest rates, governments in the Gulf region have benefitted from higher energy prices and increased exports which have allowed them to repair balance sheets after the pandemic, rebuild reserves and push budgets into surplus.
With oil prices expected to remain elevated this year, there is scope for increased public sector investment into infrastructure and other projects, which should support overall gross domestic product growth.
Khatija Haque is chief economist and head of research at Emirates NBD
