Ngozi Okonjo-Iweala, director general of the World Trade Organization (WTO), warned about the economic impacts that the war will cause in Ukraine, a major wheat exporting country, for which consumers will be harmed.
“There is going to be a big impact on wheat and bread prices,” he said in a virtual event with International Monetary Fund (IMF) Managing Director Kristalina Georgieva.
Okonjo-Iweala recalled that Ukraine is one of the largest exporters of wheat and recalled his previous warnings about the economic risk of the conflict amid the global recovery from the Covid-19 pandemic and warned that the impact will go beyond Ukraine.
He highlighted additional pressure on inflation, which may accelerate amid rising energy and wheat prices.
Kristalina Georgieva said the sanctions “add to the economic impact of this crisis and will affect energy and grain prices, adding to concerns about inflation and how it might be countered.”
a lot of uncertainty
The conflict adds uncertainty to the economy, which is reflected in the financial markets and undermines confidence in emerging countries, causing an exodus of capital at a time when more financing is needed.
Georgieva said that Ukraine asked the IMF for help. “We are exploring support options, including through the $2.2 billion aid program that is due to be implemented between now and June.”
Alfonso García Araneda, director of Gamma Derivados, highlighted that the conflict is seasoning the effects generated by the pandemic in which the disruption of production chains and enormous liquidity caused a rise in the price of grains.
He said that energy will also be affected, since Russia is the third largest crude oil producer in the world and Ukraine is the route to transport gas from Russia to Western Europe.
The foregoing, he added, could generate changes in the origin of wheat and corn imports, tightening North American inventories and causing them to react upwards for the time being.
All this translates into additional inflationary pressures, but also into the possibility that the global economic slowdown will deepen, which could imply changes in the central banks’ monetary policy strategy, which will generate volatility.
The latest developments could also put fresh pressure on energy and grain prices, with Brent futures topping $105 a barrel and wheat futures rising to levels not seen since 2008 on Thursday before pulling back on Friday.
Hedge funds reduced long bets on the British pound while short positions on the yen were reduced, according to the Commodity Futures Trading Commission. Separate data from Goldman Sachs showed fund outflows from European stocks, while flows into developed-market stocks fell into negative territory.
Safe-haven assets will be in demand as US Treasuries, German Treasuries and the Swiss Franc see heavy buying as traders digest the implications of the latest round of sanctions.