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What the European conflict means for business

Chief Economist, ANZ

2022-03-02 00:00

The crisis in Ukraine is a tragedy and the human cost innumerable. But for business in the Asia-Pacific region, at least for now, the first-order impacts of the crisis are unlikely to be substantial.

The two nations involved in the crisis - Russia and Ukraine - are large in population but not in economic terms. Sanctions put in place so far have been designed not to significantly damage the West economically, including exceptions to restrictions on the SWIFT financial messaging system.

The macroeconomic backdrop is one of very stimulatory policy settings, where risk appetite is already quite weak. The ANZ Risk Appetite Index is as weak as it has been at any stage in the last decade, outside April 2020.

Global activity is likely to remain quite strong, inflationary pressures are broad, and many central banks are behind the curve. The US Federal Reserve is still expected to hike in March, although 50 basis points is likely off the table for now.

There are sectoral impacts which could be substantial for some businesses and individual asset prices. The crisis is very relevant if you trade or share supply chains with Russia or Ukraine, or if you have exposure to energy or wheat prices. Within the strong global economy dynamic there are plenty of sectoral challenges around, and this is certainly one.

We don’t know everything about how this could evolve. The SWIFT sanctions could broaden; action against Russian energy exports could intensify. There are third-order effects that will become apparent over time, but for now the main countries involved are modest in size.


Economically, Asia is vulnerable to rises in energy and food prices, but the demand impacts are limited.

From an asset-market perspective, China, as a large economy, seems perhaps best placed. The renminbi has not weakened at all since the beginning of the crisis.

There is likely to be ongoing demand for China’s assets as its weight in the key global benchmarks increases over time.


The crisis has created another commodity price shock. Commodities have already been very strong because of the excess stimulus through the pandemic, low growth in supply, and adjustments related to climate change.

Oil, gas, and wheat have attracted headlines. But Russia is also a top-five exporter of aluminium, nickel, palladium and iron ore.

Heightened geopolitical risks have had differing impacts on the crude oil market. In instances where those risks have directly hit producers in the past, the impact on prices has been substantial.

Similar crises in the Middle East have seen oil spike sharply. However, prices quickly gave back those gains once the risk dissipated.

The potential disruption to supplies in the current situation is nearly twice the level seen then. The likelihood of sanctions being placed on Russian crude oil is relatively low, so any risk premium would quickly be erased should the risk subside.


The geopolitical unrest of the last decade, the trade wars, sharp increases in global military spending, and now the crisis in Europe all highlight the new normal when it comes to both domestic and international politics around the world.

The forces driving these changes are substantial and entrenched: inequality, technology, and great-power rivalry as some economies ascend and others descend.

Businesses and investors need to build redundancy against events which may not have happened often before - but are now happening with greater regularity.

We can no longer rule things out, thinking this kind of thing will never happen. It’s already happening.

Richard Yetsenga is Chief Economist at ANZ

What the European conflict means for business
Richard Yetsenga
Chief Economist, ANZ

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