Nouriel Roubini. Source: https://www.concordia.net/Nouriel Roubini -- Project Syndicate
Feb 25, 2022
It is tempting to think that the war in Ukraine will have only a minor economic and financial impact globally, given that Russia represents merely 3 percent of the world economy. But policymakers and financial analysts need to avoid such wishful thinking.
NEW YORK -- In late December, I warned that 2022 would prove to be much more difficult than 2021 -- a year when markets and economies around the world fared well overall, with growth rising above its potential after the massive recession in 2020.
By the eve of the new year, it had become apparent that the surge of inflation would not be merely temporary, that the ever-mutating coronavirus would continue to sow uncertainty around the world, and that looming geopolitical risks were becoming more acute. First among the three geopolitical threats that I mentioned was Russian President Vladimir Putin’s massing of troops near its border with Ukraine.
After two months of stop-start diplomacy and bad-faith negotiations on the part of the Kremlin, Russia has now launched a full-scale invasion of Ukraine, in what American officials say is an operation to “decapitate” the current democratically elected government. Despite repeated warnings from the Biden administration that Russia was serious about going to war, the images of Russian tanks and helicopter squadrons blitzing through Ukraine have shocked the world.
We now must consider the economic and financial consequences of this historic development. Start with a key geopolitical observation: This is a major escalation of Cold War II, in which four revisionist powers -- China, Russia, Iran, and North Korea -- are challenging the long global dominance of the United States and the Western-led international order that it created after World War II. In that context, we have entered a geopolitical depression that will have massive economic and financial consequences well beyond Ukraine.
In particular, a hot war between major powers is now more likely within the next decade. As the new cold war rivalry between the US and China continues to escalate, Taiwan, too, will increasingly become a potential flashpoint, pitting the West against the emerging alliance of revisionist powers.
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