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Answering Economic Questions About Ukraine

February 25, 2022

In this week's episode of TrendsTalk, ITR CEO Brian Beaulieu discusses the economic concerns and questions that have arisen regarding Russia's invasion of Ukraine.



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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi. I'm Brian Beaulieu, CEO and Chief Economist for ITR Economics. The invasion of the Ukraine territory, sovereign nation, by Russia, certainly is causing a lot of consternation, a lot of economic questions. The team has been looking into that, and I thought I would share some summary thoughts with you regarding that.

First, we don't see any immediate threads running back into the US economy in terms of doing us any damage. Russia is not a significant trading partner, from the United States perspective. We're Russia's third largest trading partner, but they're about a little less than one tenth of our size, economically speaking. So, we matter to them a great deal than they matter to us.

We looked into the titanium issues, the semiconductor issues, ramifications of that, and again, for the titanium, we aren't looking at much exposure here in the United States. That's not really an issue.

The semiconductor supply chain is, of course, important, but so far we haven't read anything about those factors, those materials, being part of any sanctions in terms of the exporting of those from, or anybody else buying those, from Russia or the Ukraine. The financial sanctions are very powerful, even without the inclusion of SWIFT, and certainly going to put a hurt on the Russian economy, as well as Putin and the oligarchs.

The UK joining the United States and Europe, with these sanctions, is certainly very important. While the United States doesn't face a great deal of pressure from the events going on, our partners in the EU certainly have greater exposure. Germany is a major trading partner with Russia. Number Two, as a matter of fact, on Russia's hierarchy of trading partners. Clearly, stopping the pipeline, not signing that deal, letting the gas flow into Germany, is going to keep energy prices elevated in that economy, and beyond. And that's of significant concern.

Europe hasn't completed the recovery from the COVID recession, including Germany not completing that recovery. So, this isn't going to help them be able to close the gap between where they are and where they were, back in 2019.

Right now, as of yet, we're not changing any of our forecasts. We may have to for Eastern Europe. We're going to give that another day or two, maybe another week, to see how events unfold. They're already talking about brokering some sort of a deal with the government in Kiev, in order to stop the bloodshed. The Russian forces are knocking on the door, apparently in Kiev, if you believe the news reports. So, it doesn't look like this is going to me a long drawn out deal. And then, it becomes a matter of how quickly can trade get normalized again, between primarily, again, Russia and Europe, rather than Russia and the United States.

China coming in is certainly being a factor, in facilitating trade for Russia, is something to be watched. But our first forecast likely to face some changes would be Eastern Europe forecast. And again, we need a couple of days, maybe a week, in order to see how all of that is shaking out. We may need to go in and lower Germany's and other parts of Western Europe. We'll be determining that. But our US outlook is not likely to change.

This would be a radically different story if we were talking about Taiwan having been invaded, or militarily attacked by China. They're economic ties are much clearer, keener, between Taiwan and the United States. So, this, while more serious than what went on in February and March of 2014, doesn't look like it's going to have any much greater impact on us than the invasion of the Crimea Peninsula did back in 2014.

If it gets over swiftly, and that's the key, then the economic fallout tends to be less significant. If this thing drags on, then the pain in Europe could become more significant. We'll be watching it. So far, we're taking our cues from the bond market, the stock market, and if they remain relatively sanguine about the invasion, we're likely to be also. Thank you for watching this edition of TrendsTalk. I'm Brian Beaulieu.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.