The economic consequences of the war in Ukraine

The Ukraine War has catalysed a tsunami of negative economic events around the global economy – and markets are remaining pretty much blind to the long-term consequences.

Blain’s Morning Porridge April 21 2022 – The economic consequences of the war in Ukraine

“The Ravenous Bugblatter Beast is so mind-boggling stupid it thinks if you can’t see it, it can’t see you. Therefore, the best defence is to wrap a towel around your head.”

This morning: The Ukraine War has catalysed a tsunami of negative economic events around the global economy – and markets are remaining pretty much blind to the long-term consequences.

Earlier this week I was chatting to a client with a keen interest in economic history about the unprecedented effects of: “a small regional conflict in Ukraine, and the global economy has gone to wracksh*t.”

It’s clearly not a little war if you are the last stand defenders of Mariupol, or preparing to pushback waves of T-72s on the Donbas front, but you would be hard put to find a historical example of a regional conflict triggering the magnitude of uncertainty or such deep biting global trade ructions around the globe, without it turning into something even more destructive and wide-ranging.

Forget the geopolitical ramifications for a moment. The waves of tectonic economic instability unleashed by the Ukraine conflict have shocked and caught the global commentariat of politicians, central bankers, economists and investment analysts off guard. Inflation from agribusinesses, energy and supply chains is spinning unchecked – and, like a nuclear reaction, they are triggering a host of follow up consequences. It feels a little bit Chernobyl – the reactor is going critical! Our cosy assumptions about how the interconnected globalised economy was supposed to work are being rocked to the core.

Unsurprisingly, global markets aren’t showing anything like as much concern. Yesterday’s spanking of Netflix by a mind-numbing 35% plus tumble will be this morning’s topic on trading desks. They will wonder if its another nail in SPACS or which firm goes next. But they won’t be thinking through the implications of inflation on consumer discretionary spending on growth.. that’s complex…

Consequences and tomorrow are overly difficult notions for most day traders. Markets prefer binary questions.  War in Ukraine? Let’s buy defence stocks…. Food crisis? Ok, more wheat and rice… Supply chains? Doesn’t seem to be a problem for Tesla. If they think beyond today, markets are focused on central banks interest rate policy, and figuring out just how sustainable relative stock prices will remain. As usual – markets remain focused on the short-term, almost blind to anything beyond their own time frame.

As I’ve said before; there is a massive difference between the way markets trade, and how to invest in them.

I am convinced the market is significantly underestimating how the rollover from Ukraine consequences will hit the global economy – and thus long-term markets…

More to the point, the Ukraine war is raising massive issues and consequences around how governments can respond to the multiple global challenges it throws up. It is also throwing government failures to address pre-existing economic malaises and issues into stark relief. The failure of the West to anticipate a global shock, redrawing geopolitics, and supply chains looks like it has close parallels in 1930s appeasement.

This week the IMF has warned global growth will slow significantly as a result of the Ukraine war – down to 3.6% from 6.1% last year. They see impacts across emerging economies from higher food and energy costs causing significant economic pain and plunging millions into poverty. Businesses with high cross-border elements are set to contract dramatically – from airlines to software as nations increasingly look internally. Rising interest rates to combat inflation will simply further slow growth – financial tightening triggering an aggressive negative feedback loop across highly indebted nations and corporates.

Meanwhile, China’s pandemic lockdowns, the ongoing ructions in real estate and banking are no-doubt rising tensions within the leadership as the economy adjusts to a growth shock will spread through the global economy. Its simply too easy to assume China’s mono-leadership has magic solutions the rest of the globe is unaware of.

In the UK, the crisis is throwing the bumble, bluff and bluster of the Boris Johnson Brexit promise into stark relief. 5 years and 10 months after the vote that propelled Boris (eventually) into No 10, its still impossible to discern any coherent plan or programme to establish the UK within new trading blocks, or redefine the relationship with our largest trading parters. Its all still stunningly unclear how the UK will thrive in a post Brexit, post-pandemic, post Ukraine world… The Pandemic certainly didn’t help, but over its 3 years the current UK government has stumbled from one embarrassment to the next – and a leader now guilty of breaking his own lockdown laws. (Where is the Red Queen when we need her?)

The US is little better. Its desperate need to reform and rebuild its ailing infrastructure and decaying social systems has become the ultimate no-go-area. The political parties see their role as primarily to stop the other guys actually doing anything. They’ve succeeded – thus ensuring the US becomes progressively less and less effective, and more and more divided.

Then there is Europe. Full credit to Marcus Ashworth in his piece yesterday: The ECB Must Act Soon to Avoid a Currency Crisis. Inflation is being accelerated by dollar strength – while the Euro is being increasingly seen at risk through the failure of the ECB to address inflation by stemming monetary stimulus. Of course.. its very difficult for the multi-member ECB to actually agree on a course of any action that could destabilise the weaker economies and a debt crisis for Italy, Greece and whomever. Suddenly, the global economic position threatens to reopen the gaping flesh wounds hidden by the ECB and Euro’s construct.

And then there is the problem of actually fighting the economic war against Russia. Germany is slowly being pushed towards closing its energy connections to Moscow – a clear example of previous energy security incompetence – but that will come at enormous cost to the German economy… triggering the consequences of it becoming more difficult for German politicians to countenance polices that look like transfers from Germany to the rest of Europe. Convoluted or what… ?

This coming weekend we have the Marine le Pen vs Emmanuel Macron. It’s a low risk moment. Macron should win – because no one likes a far-right bigot (is the conventional wisdom)… but no one really expected Brexit. As I wrote a while ago, if the French election was even a month later it’s entirely possible the European economic situation will have become significantly worse, triggering a larger shift to the populist right – and le Pen sounds much better.

My prediction is Macron will comfortably win – but if not… Europe will take a spanking on Monday morning.

Meanwhile… an increasing number of investment banks are predicting recession as central bank tightening and the war unravel plans to smoothly address rising inflation. I’ve even seen one call for cash to outperform stocks and bonds – not sure about that… I’d be in Gold at that stage!

The bottom line? This is getting more complex every day…

Five Things to Ponder Around Today

FT – Bill Ackman sells entire Netflix state at roughly $400 mm loss

BBerg – Elon Musk’s Shanghai Bullishness Belies Supply Chain Snarls

WSJ – Buying a Tesla Will Remain a Luxury

Torygraph – Ditch Banks and buy Energy stocks to beat this world crisis

FT – Baille Gifford’s James Anderson: “There will always be the Ides of March out there”

Out of time, and back to the day job… unlikely to get a porridge out tomorrow due to early morning meetings in London..

Bill Blain

Strategist – Shard Capital


  1. “… shocked and caught the global commentariat of politicians, central bankers, economists and investment analysts off guard.”

    Right, like none of them saw it coming or had any idea it was on the cards??

    Cue Kamala Harris’s big mouth at the Munich Security Conference. Not to mention war-monger Zelensky’s nuclear utterances at the same event.

    Covid probably took them by surprise too…

  2. It appears Washington wants the Ukrainian conflict to last a long time. If the conflict and sanctions can knock Russia down a couple of pegs, the neocons will jump for joy….so likely this conflict endures for a long time.

    Sanctions generally hurts the general population without toppling the leadership. Case in point, the Castros didn’t lose power after decades of sanctions.

    Weaponizing the dollar and the Swift system will probably increase the pace of nations less aligned with the European/US axis to reduce their exposure to dollars. And there are a lot of dollars floating around the world. Less demand with a lot of supply….dollar will be worth less…?…

    Throwing more weapons into Ukraine will certainly lengthen the conflict but where will the weapons ultimately end up???

    The risks are plentiful and the solution to the puzzle is hazy at beast. Bill….can you lend our world leaders a crystal ball?

    They are going to need it.

    The world certainly has its share of challenges!

    • Washington may want the Ukraine conflict to last a long time but this isn’t Iraq. They may be disappointed. The Russians have flattened Mariupol but this may be the exception. Mariupol was home to the Azov neo-nazi battalion so Russia had no choice. Mariupol will be rebuilt, by the way, with help of the Chinese. Infrastructure within Ukraine has been largely untouched unlike in Iraq where the US spent the first 44 days bombing all electricity power stations, rail networks, bridges, telecommunications etc. The US left Iraq without an army to win the peace. The military to civilian casualties inflicted by the US in Iraq was about 1 to 1. Ukraine is 7 to 1. Unparalleled in modern warfare.

      To cut this comment short. Russian will leave Ukraine with an army and infrastructure intact at the end of the confict but with the neo-nazis out of power and US/UK kicked out, a Neutral country. Obviously the Neocons will try their hardest to stop that from happening, even to the brink of ww3 perhaps.

    • Nonsense! The only hope for the whole of Europe, & not just the EU, is a very quick victory for Ukraine and the utter humiliation of Putin. Otherwise he will continue to have us by the short and curlies, not just as a result of the direct gas price but the subsequent cost of nitrogenous fertiliser.

      Apart from Europe there are a host of countries from Morocco in the West to Afghanistan & Pakistan in the East with a total population of well over 400 million, which depend entirely on imports to supplement their bow wheat production for their daily staple of bread. If the current situation isn’t sorted out quickly then millions, upon millions will either starve at home or will try to migrate north in the hope of salvation!

      • Precisely, that’s the plan, deprivation for all including the “useless eaters” in the West. This is not a Russia vs West conflict, it’s the Elites vs its citizens. Conspiracy theory? Follow the money and do the maths.

      • I think you have hit the nail on the head, Alistair. The only hope for the Neocons is regime change in Russia. Then we get to control their natural resources.

        • Precisely. As they used to say in the US: There’s gold in them thar hills. Well, Russia has something like 100 trillion of resources…just too good for any banker or neocon to pass up. Therefore (in their calculus) easily worth the lives of a few thousand -or 10s of thousands, of Ukes, Russians, and others.

  3. I was hoping for closer ties to Russia as a result of Brexit. How wrong was I?

    It was interesting to see Boris in India today. Did Boris threaten India with economic consequences if she continued to buy oil and military equipment from Russia? I also wonder what they thought of him and of Britian, how far the great have fallen perhaps? At least Boris got what he wanted – to wear a turban on his head for part of the day.

  4. Putin is reportedly the richest man in the world, with his assets being shielded by the Oligarchs. So if Putin has a nasty accident and disappears, it means that the Oligarchs get to keep Putin’s loot. Seems like he has put a very large target on his back

  5. “This week the IMF has warned global growth will slow significantly as a result of the Ukraine war – down to 3.6% from 6.1% last year. They see impacts across emerging economies from higher food and energy costs.” Talk about useless statistics: every dollar of additional deficit spending($20 TRILLION in one decade) is counted as an additional dollar of GDP, so the real question is” What growth? With stagflation you could be looking at rising GDP with declining real production, but you will never be able to figure it out in the MSM- only to see how many of your neighbors are being laid off.

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