Russia’s invasion of Ukraine reduced the prospects for a global economic recovery already weakened by the coronavirus pandemic, according to the Financial Times analysis discussed in this article. The invasion shook financial markets, while rising geopolitical tensions threatened to worsen inflation and supply-chain bottlenecks.

Economists said reduced trade with Russia and sanctions imposed by the United States and the European Union were likely to affect business and consumer confidence and global markets.

The consequences could range from relatively limited to extremely serious. Continued increases in energy prices, the analysis warned, could push the global economy towards a second recession within three years.

Financial sanctions were intended in particular to constrain Russia’s borrowing. US investors would be unable to buy Russian debt issued after the beginning of March, while access to European financial markets for refinancing would also be restricted.

Some countries would prohibit both the issue and secondary-market trading of Russian government bonds. With the objectives of President Vladimir Putin’s war unclear, experts considered scenarios ranging from a change of government in Kyiv to broader efforts to redraw international borders.

Berenberg chief economist Holger Schmieding argued that the first question in assessing the economic damage was the severity of the war itself, which would shape financial- and energy-market responses.

At the time the article was written, eighteen days into the invasion, the events had confirmed US warnings about Russia’s intentions despite earlier denials.

Other economists argued that the wider international response would need to be decisive and sustained. Support for Russia by some countries could extend the geopolitical crisis into the financial sector. Tim Ash of BlueBay Asset Management cited China’s stated willingness to help Russia manage the financial consequences of its military action.

Leading global financial markets had fallen sharply, although the losses might have been worse. Economists described the shock as substantial but not yet the most severe market shock.

Oil prices were beginning to stabilise after sharp increases, while European wheat prices eased following record closing levels. Russia and Ukraine are major wheat producers. Corn prices continued to rise, and European stock markets began to recover after losses of around 4%.

The article notes that Russia’s military operation began on 24 February 2022, following recognition of the separatist Donetsk and Luhansk regions and months of tension with the West.

In my view, Ukraine—approximately 603,550 square kilometres, with around 42 million people and GDP of about US$200 billion in 2021—was experiencing economic weakness despite considerable potential. Since independence from the former Soviet Union, it had not fully benefited from its natural resources, while successive crises with Moscow and allegations of corruption had added to its difficulties.