Together, “the Russian and Ukrainian economies represent less than 3% of global GDP and less than 2.5% of global trade.
“Foreign financial exposures to Russia are low, and the International Monetary Fund has assessed that [government] or bank default is not a systemic risk to global financial stability.
Russia is, however, a major global supplier of rural, mineral and energy raw materials. Thus, the invasion has caused substantial disruptions in global commodity markets, according to the newspapers, and has the potential to significantly increase inflation and global growth.
“Russia produces 18% of the world’s gas and 12% of the world’s oil supply and, together with Ukraine, accounts for around 25% of world wheat exports.” The invasion increased the risk of supply disruptions, driving up prices for energy, agriculture and metals.
“Global supply chains also depend on Russian exports of metals, especially palladium [a rare metal used in catalytic converters of exhaust fumes, and fuel cells]a significant supply disruption could therefore impact global manufacturing supply chains.
All economies will be affected by rising global commodity prices. Among the hardest hit will be Europe, Japan and South Korea, which are heavily dependent on energy imports. These countries and others will experience what economists call a “negative terms-of-trade shock”, i.e. the prices of their energy imports will rise relative to the prices they get for their exports.
But, according to the newspapers, a smaller set of countries will benefit from a “positive terms of trade shock” – because they are net exporters of more expensive energy products. Their consumers and businesses will pay the higher world price for the gasoline and other fuels they use, but this will be more than offset by the higher prices their energy export producers will receive.
Among this small group is a lucky country whose net energy exports are twice as large as its domestic energy consumption. It’s Austria. Sorry, do this in Australia. As economist Chris Richardson might say, you you may be paying a lot more for your gas, but the economy has been hit in the back end by a rainbow.
With respect to our floods, although it is still raining and it is too early for final numbers, last week’s budget documents indicate that as part of an agreement that the federal government will fund up to At 75% of aid provided by state governments, the federal government expects to pay more than $2 billion for household income support, temporary housing and social services, about $600 million for cleaning up and rebuilding communities, and nearly $700 million for businesses and farmers for repairs, new equipment and support services.
In addition, the budget calls for additional federal spending of $3 billion over the next four years.
Moving from the budget to the economy, we are told that the “direct economic cost” – that is, the purely monetary costs that show up in GDP – should subtract about 0.5 percentage points from GDP growth. of the country during the March quarter.
What costs appear in GDP? This is mainly a reduction in production in the mining, agriculture, accommodation and food services, retail trade and construction sectors.
However, you will be relieved to learn that this 0.5% overestimates the report the impact of the floods on real GDP in the longer term.
Why? Because “this direct cost will be partially offset by increased investments to replace and rebuild damaged housing, infrastructure and household goods”.
And here’s some good news: the reduction in coal exports caused by rain in the March quarter is not expected to be as severe as previous weather events, such as floods and Cyclone Yasi in 2011.
If you find all this mercenary and unpleasant, it is not new. The onset of World War II helped end the Great Depression. And the bombed-out reconstruction of Europe and Japan after the war helped rich countries grow faster than ever before – or since.
Ross Gittins is the Economics Editor
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