Impact of Russia–Ukraine conflict on Russian financial market: Evidence from TVP-VAR and quantile-VAR analysis (2024)

FAQs

How does the Russian Ukraine war affect the financial markets? ›

Macroeconomic concerns such as energy-price-led inflation and rising rates, coupled with the political uncertainty caused by the war, led to equity-market drawdowns that lasted as late as September 2022 for all major global markets. Over the past 12 months, emerging-market and U.S. equities suffered the most.

Almost one half of surveyed digital advertising professionals in Russia expected the market to shrink by 26 to 50 percent in 2022, given the impact of the Russia-Ukraine war, subsequent international sanctions, and social media bans in Russia.

In November 2022 it was reported that Russia had officially entered a recession as the Federal State Statistics Service had reported a national GDP loss for the second consecutive quarter. According to most estimates, every day of the war in Ukraine costs Russia $500 million to $1 billion.

COVID-19 and the Ukraine war have mainly disrupted global supply chains, causing shortages of commodities, but from Pakistan's perspective, the main impact has been the rising prices rather than an absolute quantity shortage.

As a response to the Russian invasion of Ukraine, many governments have responded with a series of financial sanctions, including freezing assets and banning Russian banks from Society for Worldwide Interbank Financial Telecommunication (SWIFT), a messaging service used to facilitate cross-border payments.

As Russia's war against Ukraine continues to unfold, its global economic impact remains uncertain. Evidence from the stock market indicates that firms with strong trade or ownership ties to Russia are more likely to face adverse consequences as the conflict wears on. Wars cause severe economic damage over the long run.

War often brings about a level of uncertainty which markets typically dislike. The outbreak or anticipation of war can lead to a sharp sell-off in stocks. At the same time, investors may move towards traditionally safer assets like gold, bonds, or currencies perceived as safe havens.

Because geopolitical tensions often lead to increased uncertainty, investors may become cautious, causing stock markets to fluctuate. Indeed, the Russia–Ukraine war caused stock markets to experience sharp fluctuations in equity prices (see Fig. 2).

The Russia–Ukraine conflict has affected commodity markets through both economic and financial channels and has significantly increased the risk of volatility. In fact, this is greater for raw materials, agricultural products and energy, with a higher global share of exports.

Ukraine lost $19.4 billion in exports, while Russia gained $68.3 billion. Russia realized trade gains of $41.1 billion in Asia. The war had limited trade implications for not directly involved countries. Global market adjustments operated mainly through increased commodity prices.

How is the Russian economy today? ›

The Russian economy is shrinking

It is estimated that in 2022, Russia's gross domestic product (GDP) dropped by 2.1%. Russia's economy may continue to shrink in 2023. Its GDP is forecast to decline by 2.5% in the worst-case scenario (OECD) or by 0.2% according to the World Bank. The IMF expects growth in 2023 (0.7%).

Russia has deep cultural, economic, and political bonds with Ukraine, and in many ways Ukraine is central to Russia's identity and vision for itself in the world. Family ties. Russia and Ukraine have strong familial bonds that go back centuries.

The ongoing Russia–Ukraine conflict negatively impacts global stock markets. Sanctions imposed against Russia create economic setbacks, affecting local stock market. The conflict disrupts global trade relations, especially with the EU, leading to uncertainty for investors.

Russia's decision to invade Ukraine further complicates global supply chain challenges and will increase inflationary pressures. In our most recent chartbook, we note that persistent pandemic-related disruptions to the supply chain will mean continued shortages of goods at least through 2022 and likely beyond.

The war has also substantially limited the ability of Ukrainian farmers to grow and ship their crops. The same source estimates the war has imposed an additional $36.2 billion in indirect costs to agriculture, mainly in the form of foregone production and higher logistics costs for continuing agricultural exports.

A new World Bank report -- The Impact of the War in Ukraine on Global Trade and Investment -- shows that world trade will drop by one percent, lowering global GDP by just under one percent. Manufacturing exporters such as Vietnam, Thailand, and Mexico see a sharp decline, especially in energy intensive sectors.

1 shows price changes for key food and nonfood commodities between June 2021 and July 2022 (World Bank 2022). By April 2022, the world crude price had increased by almost a half; palm oil and wheat prices had risen by two-thirds; and natural gas and fertilizer prices had more than doubled.

The Russia–Ukraine war resulted in a 70.72% change in WTI crude oil price and a 73.62% change in Brent crude oil price during the event window.