24 Feb Global Economic Impacts of Russia’s War In Ukraine

The world witnessed significant disruption in economic activities due to the lockdown restrictions during the time of Covid pandemic. The early part of 2022 saw post-pandemic, global recovery as many countries intensified efforts to control rising inflation and there was talk of great optimism about future economic growth.

In February 2022, Russia launched an undeclared, full-scale war against Ukraine. Russian strategists greatly underestimated the will of Ukrainian resistance and the solidarity of Western countries in their support of Ukraine. As a result, Russia suffered significant setbacks and major casualties, with the effect of a forced change of tactical and strategic plans. Russia’s war in Ukraine led to a huge humanitarian, social, and economic crisis for Ukrainians, and this created new challenges for the global economy.

Many British companies identified this conflict as the most important source of uncertainty for their business. They already have faced or will face at least two big problems at once that will put pressure on profits. A decrease in sales volumes and commercial margins, in itself, will lead to a decrease in income and an increase in costs. A significant decline in revenues, along with a substantial increase in expenses may lead to a large decrease in profits with a risk of losses for many companies.

The consequences of Russia’s war in Ukraine have yet to be fully measured, but some patterns are already clearly visible and shall be discussed briefly below.

Global Supply Chain Disruptions

The war has triggered a massive disruption in the global supply chain. As a result of the war production, consumption, and trade in commodities have changed. Many countries move towards greater self-sufficiency creating opportunities for new suppliers. The war led to costlier trading patterns and a major diversion in energy trade and the outlook for commodity markets is highly dependent on the length of the war and the disruption it causes to supply chains.

Geopolitics

The war exposed the vulnerabilities associated with globalisation in the international system. Many organisations adopt hedging strategies to protect their global interests and assets as more protectionist trade policies are implemented. Countries and businesses are focusing on rebuilding supply chains to achieve self-sufficiency and greater control over access to priority goods and services. This reversal of decades of trade and specialization will inevitably lead to higher prices for goods and services in the long run. It’s clear that the energy supply and its costs have been significantly impacted as a result of the conflict and G20 leaders are suggesting an interim change to their policies on fossil fuels and their use domestically and commercially. the consequences of this may not be fully appreciated for many years to come.

Inflation

Despite rising energy and commodity prices, which increased profit margins in some sectors, supply-side costs rose across the global economy. Most of these increases and costs are passed on to the end consumer, further exacerbating price inflation, while businesses seeking to absorb them may struggle to stay afloat. Many businesses are adjusting their budgets for risk management solutions and reducing discretionary spending to account for inflationary pressures from supply shocks.

Financial Stress

Financial institutions and large companies have faced large margin calls leading to the cancellation of trades and suspension of trading. More broadly, financial instability can spread across countries through a generalized rise in investor risk aversion, leading to currency depreciations, falling equity market valuations, and rising risk premia in bond markets.

The increased risks induced by Russia’s war in Ukraine will weigh adversely on global economic conditions in the next few years. Since the future of the war is highly uncertain and unforeseen developments could generate further changes to geopolitical risk and worsen its economic effects.

Ensuring Business Continuity 

The ongoing war, like the pandemic, has accelerated and magnified existing problems in global supply chains, emphasising the interconnected nature of the global economy. It highlighted the importance of improving resilience in every business. Communication in the workplace is crucially important to every business’s success. Companies are trying to equip employees with the tools and technology needed to do their jobs from home. Office-based activities like accessing business data, holding meetings, and sharing reports became major stumbling blocks. When employees are unable to have face-to-face meetings, communication can be compromised. Video conferencing and chat applications help, but communication requires more than just talking. Team members should also be able to collaborate remotely with access to up-to-date and accurate project management reports, documents and resources. It guarantees that they are working toward the same goals with the same information, and cloud ERP solutions make that possible. In a cloud ERP solution, data from every department in an organisation flows into and out of a centralised database. Employees can access synchronised, real-time data, streamline their workflows, and use automated business processes from anywhere.

How Can Acumatica Help?

Acumatica is an award-winning ERP system built for the cloud. It is a comprehensive solution comprising a full suite of integrated applications using an open, future-proof platform. This is a powerful and inherently flexible tool that ensures:- business continuity, the actualisation of the workforce (the integration of MS Teams being just one example) and the optimisation of processes company-wide.

The current economic climate is not something that any company would choose to experience, however, it’s clear that models need to be flexed and then reset. Acumatica offers the best option for responsiveness to change amongst these present market conditions.

If reviewing ERP is on your horizon, then please get in contact with Arcus Universe and we would be glad to discuss how we can help.