22 Mar 2023
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Within this piece, Sentadell Associates presents a well-researched and informative overview of the current and future state of labor risk amid uncertain economic conditions, offering insightful ideas and explanations.
Prior to delving deeper, it is advisable for us to first gain a broad understanding of the prevailing global economic conditions. The impact and continuity of the Russian and Ukrainian wars have a profound effect on the state of the global economy, shaping economic conditions in a fundamental way. Addressing macroeconomic conditions, In 2023, the global economy is predicted to slow down significantly after two years of rebounding from the covid-19-related recessions. The EU, Chinese, and US economies will all experience marked deceleration, leading to a projected global real GDP growth of 1.6%, a drop from 2.8% in 2022 and 5.7% in 2021. Despite the bleak economic outlook, global consumer price inflation is expected to remain high at 6.3% in 2023, resulting from increased prices for energy and food commodities after Russia's war in Ukraine. Inflation rates will vary across regions, with stronger upward pressure in Europe and North America than in Asia. The west will continue monetary tightening, while China and Japan will maintain accommodative policies amid economic softening. High inflation rates will persist in some G20 economies, including Argentina and Turkey.
As previously mentioned about inflation that occurs, inflation has become a crucial factor in evaluating the economic situation worldwide. It serves as a fundamental metric to assess the state of the global economy.
By examining the data above, it could be seen that the inflation trend from pre-war to the beginning of Q1 2023 shows a remarkable increase, with the highest peak occurring during the Russian-Ukraine war at 9.1% (June, 2022). Viewing inflation through the lens of war, it can be observed that inflation began at 8.5% in March 2022 and decreased as the conflict subsided, reaching 6% in February 2023. However, the focus of discussion here pertains to the issue or risk of unemployment caused by inflation, therefore let's connect the two dots.
The graph from Sentadell Associates research above shows two crisis periods (1985-1987 and 1990-1991), where consumer staples tend to increase while unemployment increases, and consumer discretionary decreases. During oil-related crises, consumer staples are seen as a defensive sector due to inflation and rising production costs. This leads to many companies terminating employment, causing unemployment to rise, and people prioritizing basic needs over discretionary goods due to reduced disposable income. While the impact of the Russian-Ukrainian war on the “global” labor force was relatively limited, it did have some indirect effects on global labor markets. Disruptions to trade between Russia and Ukraine and subsequent reductions in global supply chains could have potentially impacted the employment prospects of workers in other countries reliant on these supply chains. Moreover, the conflict's contribution to geopolitical tensions and uncertainty could have adversely affected global economic growth and labor markets.
In addition, the war in Ukraine resulted in an increase in natural gas prices due to Russia's significant role as a global gas supplier. This price increase may have had negative effects on employment prospects in industries that rely heavily on energy, such as manufacturing and transportation. Furthermore, the high inflation rates experienced during the conflict in Ukraine may have indirectly affected labor markets in other countries, as inflationary pressures can have spillover effects on economies through trade and financial connections. Several major international corporations have commenced staff reduction measures in 2022, in the aftermath of the Russia-Ukraine conflict. Notable examples include Shopee, which has dismissed 100 workers equivalent to 10% of their workforce, Softbank with 150 layoffs, Xiaomi with 900 employees impacted, and Ford with a significant reduction of 3000 employees, among others. • Also a number of global companies, including McDonald's, Renault Group, and PepsiCo, ceased their activities in the nation, thereby endangering the jobs of countless Russian employees. Furthermore in Russia alone, The unemployment rate in Russia remained unchanged at 3.7% in December 2022, which was consistent with the previous month's figure. This is significantly lower than the unemployment rate of almost six percent among the 15-and-over workforce in the same period two years earlier. The reports also indicate that the Russian invasion resulted in a loss of 4.8 million jobs, which actively demonstrates that the war has had a significant impact on both Russia and Ukraine.
To sum up, the consequences of inflation during the Russia-Ukraine war on labor risk can be profound, extending to various aspects of workers' lives such as income, employment stability, and economic welfare. The erosion of purchasing power caused by inflation can lead to reduced real wages and a decline in the standard of living for workers, thereby heightening labor risk. Moreover, high inflation rates can create an environment of uncertainty and instability in the labor market, exacerbating the challenges that workers face, and making it difficult for them to plan for the future. Ultimately, inflation during the Russia-Ukraine war can have severe and long-lasting effects on workers' financial security, employment prospects, and overall quality of life.
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