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Russia-Ukraine conflict denting global confidence

14th April 2022 - Author: Pete Carvill

Russia’s invasion of Ukraine in recent weeks has caused confidence in global trade to fall dramatically, according to the latest Allianz Trade Global Survey 2022.

The authors of the report say they conducted two surveys involving nearly 3,000 corporates. One survey was conducted before the start of the invasion, with the second conducted after. It found that the share of respondents expecting an increase in their export turnover dropped from 94% to 78% following the invasion.

Likewise, Allianz Trade said it was cutting its forecast, due to supply chain issues and confidence, for global GDP growth to +3.3% in 2022 and +2.8% in 2023 from +5.9% in 2021.

Ana Boata, global head of economic research at Allianz Trade, said: “While current negotiations between Ukraine and Russia could provide a path towards a ceasefire, further escalation cannot be excluded, resulting in even harsher sanctions and counter-sanctions (including on energy supply). In such an adverse scenario, global inflation would soar to 7% this year while growth would decline to +2.5% before the global economy enters into a recession 2023 (-0.3%).”

The firm has made distinct parallels between confidence before Russia’s invasion and after.

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It wrote: “Before the invasion of Ukraine, companies seemed to think that 2022 would bring them even more opportunities than 2021: Overall, 94% of businesses were expecting an increase in their export turnover, with the most optimistic companies in France and Italy (97%). Most exporters were planning to expand their businesses to new markets in 2022 (79%), especially Chinese and American firms (92% and 84%, respectively). But the military aggression in Ukraine and the massive sanctions imposed against the Russian economy changed the story.”

Another issue outlined by the report is the impact of higher energy prices in Europe, which have spiked since the invasion. 56% of respondents told Allianz Trade that high energy prices were to become more of a challenge, up from 37%. Most worried, said Allianz Trade, were those countries that had the highest dependency on gas imports, singling out Italy, the UK, and Germany.

Ano Kuhanathan, head of corporate research at the firm, added: “The fact that France has the lowest share of companies concerned by high energy prices (46% vs. 37% pre-war) likely reflects the implementation of the government’s ‘Resilience Plan’ that takes into account the cost of the energy bill for most corporates.”

Another risk provoking fear in respondents were that of non-payment. The survey showed that overall, non-payment issues had a moderate or significant impact on export activity over the past 12 months for nearly 60% of firms, with the highest shares in France (66%), China (65%) and the U.S. (58%).

Moreover, despite the strong economic rebound in 2021, cash hoarding in many corporates and a solid recovery in global trade, 50% of respondents declared that payment times got longer in 2021, especially in France (62% of firms). Interestingly, among firms that have undertaken digitalisation, 58% of respondents still reported longer payment times.

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