The world economy had just recovered strongly in 2021 from the pandemic COVID-19. Along with this global recovery, another crisis between the majority of oil producers, Russia and wheat global exporters, Ukraine, has become another issue that urgently needs to be looked up to.
There is a significant cause to be concerned about a potential escalation of the war between Russia and Ukraine. On February 24, 2022 global news was overflowed by the tensions between these two countries. Russia and Ukraine have a longstanding tension history of country invasion, a war between the two countries is possible to happen. The tensions between these two countries are mainly seen as the involvement of Russian subjugation of Ukraine.
The World Trade Organization (WTO) said the most immediate impact of the war has been a sharp rise in commodity prices. Both Russia and Ukraine are key suppliers of essential goods such as food, energy, and fertilizers, supplies of which are now threatened. The significant increase in global commodity prices resulted with an economic shock, inflation and the disruption in global financial markets. The war is taking place as other factors that impacting the global trade, including the latest COVID-19 lockdowns in China which are again disrupting maritime trade just as supply chain pressures appeared to be easing.
However, South Korea’s economy expanded at the fastest pace in 11 years thanks to a jump in exports and construction activity, tempering declines in capital investment and a slow recovery in the coronavirus-hit service sectors. The crisis management is exceptionally well, as the country managed to contain several waves of infections without complete border closures or local lockdowns. This helped ensure the continuity of essential social and economic activities. The country is currently the seventh biggest exporter in the world. Its main export products are integrated circuits, automobiles, refined petroleum, vehicle parts, and passenger and cargo ships. The nation’s main export partners are China, US, Vietnam, Hong Kong, and Japan. In addition, the prices of real properties in South Korea have continued to increase despite new government policies aimed at stabilizing the housing market in the country.
Expansionary fiscal policy will continue to support employment and the economy. However, as the economy recovers, fiscal support should become more targeted on the hardest-hit households and companies. Moreover, policy should strive to accelerate digitalization, green the economy and enhance the still weak social safety net in accordance with Korea’s New Deal.
Adapting with this instability, Indonesia's economic growth is forecast to remain strong, supported by public or household consumption activities, investment activities, and support for government spending. As stated by the Ministry of Finance for Indonesia, Sri Mulyani, the stability of the Indonesian financial system was still normal, indicated by stable economic recovery, especially supported by the better handling of COVID-19. However, Mrs. Mulyani did not deny that there were several other risks from global conditions that would likely affect inflation, cost of funds, and domestic economic performance. Hence, Indonesia’s Financial System Stability Committee (KSSK) will continue to strengthen coordination, including in formulating policy responses that are coordinated and synergized in maintaining national economic recovery from global turmoil and dynamics.
In conclusion, it’s too soon to tell the degree to which the conflict will alter the global economic outlook. Much will depend on what happens next. For lower-income countries, disruption to supplies as well as higher prices could cause increased hunger and food insecurity. As Rusia is also a major force in the market for energy and metals, a steep drop in the supply of these commodities would hamstring construction, petrochemicals, and transportation. Oil prices have risen by more than 100 percent during the last 6 months. If this lasts, oil could shave a full percentage point of growth from oil importers like China, Indonesia, South Africa, and Turkey. In consequence, it is necessary to prepare policy calibration to address the impact of the conflict between Ukraine and Russia, so that it can be utilized to prepare for a more difficult time.