Loading rolls of steel onto a ship at the port of Mykolaiv in Ukraine. One expert predicted that ocean transport costs could triple.Credit...Brendan Hoffman for The New York Times
“We’re also going to see more product shortages,” Mr. Koepke said. While it’s a slower season now, he said, “companies are ramping up for summer volume, and that’s going to have a major impact on our supply chain
In a flurry of updates on Monday, several Wall Street analysts and economists acknowledged that they had underestimated the extent of Russia’s invasion of Ukraine and the international response. With events rapidly piling up, assessments of the potential economic fallout ranged from the mild to the severe.
Inflation was already a concern, running in the United States at the highest it has been since the 1980s. Now questions about how much more inflation might rise — and how the Federal Reserve and other central banks respond — hovered over every scenario.
“The Fed is in a box, inflation is running at 7.5 percent, but they know if they raise interest rates, that will tank markets,” said Desmond Lachman, a senior fellow at the American Enterprise Institute. “The policy choices aren’t good, so I don’t see how this has a happy outcome.”
Others were more cautious about the spillover effects given the isolation of Russia’s economy.
Adam Posen, president of the Peterson Institute for International Economics, said there were vexing questions, particularly in Europe, about what the conflict would mean for inflation — and whether it posed the prospect of stagflation, in which economic growth slows and prices rise quickly.
But overall, he said, “the damage is likely to be small.”
That doesn’t mean there won’t be intense pain in spots. Mr. Posen noted that a handful of banks in Europe could suffer from their exposures to the Russian financial system, and that Eastern European companies might lose access to money in the country.
Thousands of
people fleeing Ukraine are also streaming into neighboring countries like Poland, Moldova and Romania, which could add to their costs.
Turkey’s economy, which is already struggling, is likely to take a hit. Oxford Economics lowered its forecast for Turkey’s annual growth by 0.4 percentage points to 2.1 percent because of rises in energy prices, disruptions to financial markets and declines in tourism.
In 2021, 19 percent of its visitors came from Russia, and 8.3 percent came from Ukraine. Inflation, already at a two-decade high of nearly 50 percent, is now estimated to reach 60 percent, Oxford said.
In the United States, the chair of the Biden administration’s Council of Economic Advisers,
Cecilia Rouse, said the biggest impact on the American economy from the war was rising gas prices. “This has definitely clouded the outlook,” she said at a forum in Washington.
Gasoline prices are roughly a dollar higher than a year ago, with a national average of $3.61 a gallon, according to AAA.
Rising energy prices are tough on consumers, although good for producers — and the U.S. economy has both.
Other oil-producing nations will also see a rise in revenues. And for Iran, which has been shut out of the global economy for years, the demand for oil from other sources could help smooth negotiations to lift sanctions.
Over the longer term, the current conflict is likely to have effects on several countries’ future budget decisions. Germany’s chancellor,
Olaf Scholz, announced that he would increase military spending to 2 percent of its economic output.
“Defense spending has fallen consistently in the post-WWII world,” Jim Reid, managing director of Deutsche Bank, wrote in a note on Monday. Now, with this shift in “the geopolitical tectonic plates,” he said, priorities are changing, and “those levels are likely to rise.”
In Russia, the central bank and government took a series of actions, including doubling a key interest rates to 20 percent to increase the ruble’s appeal, barring people from transferring money to overseas accounts, and closing the stock market to contain the damage and tamp down panic.
“What’s happening right now is we’re looking at the dismemberment of one of the largest economies on the planet,” said Carl Weinberg, chief economist at High Frequency Economics. “And from what I know about tactics, this is a dangerous tactic.”
Peter S. Goodman and Jeanna Smialek contributed reporting.
