The Russian invasion and Western sanctions began to have an effect on the global economy. The Western Balkans will inevitably feel the “pinch”.
So far, much of the attention has focused on the damage Western sanctions will do to the Russian economy. But the impact of the situation on the global economy will also cause growing pain in the short term. Here are the main implications for the Western Balkans:
DISORDERED SUPPLY CHAINS. The war has rattled global supply chains that are still in disarray from the pandemic, adding to soaring costs, prolonged deliveries and other challenges for companies trying to move goods around the world. . This will result in higher prices in general.
OIL AND ENERGY. Countries that are not self-sufficient in energy and/or oil will suffer from higher prices as business costs rise and consumer purchasing power is reduced. Poorer economies are particularly vulnerable, as rising prices can cause social unrest. Albania has already seen mass protests.
SHORTER WHEAT SUPPLY. Russia and Ukraine together produce almost a quarter of the world’s wheat. Due to the sanctions, the Western Balkans could not import from Russia and the Ukrainian markets are closed. The conflict could threaten the summer wheat crop, which turns into bread, pasta and packaged food for vast billions of people, including in the Western Balkans. Alternative supply countries exist but the price will inevitably increase.
HIGHER TRANSPORT COSTS. Russia has closed its airspace to 36 countries, meaning seaplanes will have to divert to circuitous routes, causing them to spend more on fuel and perhaps encouraging them to downsize their loads. Higher transportation costs will result in more expensive products for end customers.
TOURISM. Many tourists to the Western Balkans and Turkey come from Russia or Ukraine. Albanian operators in particular have numerous reservation contracts with Ukrainian tourist agencies. Most of them will probably be canceled for the summer 2022 season.
AUTOMAKERS are experiencing shortages of key materials as Ukraine and Russia are major suppliers of aluminum, steel and chrome. Volkswagen, for example, will close production at several plants, including its main plant in Wolfsburg, Germany, due to parts shortages. This risks increasing car prices, causing major delays and affecting secondary production supply markets in North Macedonia, Serbia and Albania.
BANKS. Austrian, Italian and French banks are particularly exposed to Russian debt. Credit Suisse and Société Générale have suspended funding for commodity trading with Russia. Other European banks are considering closing their branches in Russia, but the most important aspect is exposure to Russian debt. The debt exposure could disrupt the regional or global operations of these banks in Europe or the Western Balkans.
INFLATION was already a global concern, hitting its highest level since the 1980s. Now questions about how far inflation has risen – and how the Federal Reserve and other central banks will react – hovered over each scenario. Regardless of the central bankers’ responses, inflation is not a big addition to an already troubled scenario.
It will be impossible to accurately predict the effects of the crisis, which will vary from country to country. But the uncertainty will likely affect business confidence and public consumption in the weeks and months ahead. Governments must be smart to build capable crisis response teams, able to draw on public and private sector resources to deal with an unfolding situation.