OPINION: Even if the war ended tomorrow, it would take years for these economies to recover; and the longer the war continues, the greater the damage.
CAMBRIDGE, England – Russia’s invasion of Ukraine, and the sweeping sanctions the United States and Europe have imposed on Russia in response, have triggered economic disruptions at four levels: direct, blowback, spillover, and systemic. To contain their longer-term consequences, we must start working on recovery plans now.
Russia is now headed toward severe foreign-exchange constraints, massive goods shortages, a collapsing ruble USDRUB, , mounting arrears, and the expectation among households that things will get worse before they get better. This picture has much in common with what I saw when visiting Moscow in August 1998.
But the economic consequences of the war will not be confined to the countries fighting it. Already, the West has started to feel the “stagflationary” blowback. Existing inflationary pressures will be compounded by the surging prices of commodities, including energy and wheat W00, +1.84%. Overall, the U.S. is likely to outperform Europe, which is likely to slide into recession, owing to the American economy’s greater internal resilience and agility, though the Federal Reserve’s failure to respond to inflation in a timely manner last year – a historic policy mistake – will undermine policy flexibility.
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