Moscow’s war on Ukraine and the ferocious financial backlash it’s unleashed are not only inflicting an economic catastrophe on President Vladimir Putin’s Russia. The repercussions are also menacing the global economy, shaking financial markets and making life more perilous for everyone from Uzbek migrant workers to European consumers to hungry Yemeni families.

Even before Putin’s troops invaded Ukraine, the global economy was straining under a range of burdens: Surging inflation. Tangled supply chains. Tumbling stock prices.

The Ukraine crisis both magnified each threat and complicated the potential solutions.

“We are actually in uncharted territory,” said Clay Lowery, executive vice president at the Institute of International Finance, a trade group of global banks. “We know there are consequences that we cannot predict.’’

For now, at least, the damage to the overall global economy appears to be relatively slight, if only because Russia and Ukraine are not economic powerhouses. Important as they are as exporters of energy, precious metals, wheat and other commodities, the two together account for less than 2% of the world’s gross domestic product. Most major economies have only limited trade exposure to Russia: For the U.S., it’s 0.5% of total trade. For China, around 2.4%.

Barring a major escalation of the war — far from impossible — “the effects on the U.S., China and most of the emerging world should be limited,” said Adam Slater, lead economist at Oxford Economics. He foresees only a 0.2% drop in global GDP this year.

Still, Russia is a vitally important supplier of oil, natural gas and metals, and higher prices for those commodities are sure to inflict economic damage around the world. Europe relies on Russia for nearly 40% of its natural gas and 25% of its oil. For the European continent, Russia’s war has significantly heightened the likelihood of runaway inflation, another economic setback — or both.

Here is a deeper look:

AN ECONOMIC SIEGE

Infuriated by Putin’s aggression, the United States and other Western nations have targeted Russia with sanctions of unprecedented breadth and severity for a major economy. They have thrown major Russian banks off the SWIFT international payment system, limited high tech exports to Russia and severely restricted Moscow’s use of its foreign currency reserves.

The rapid and unified international retaliation against Russia appeared to catch Putin’s regime by surprise.

“The world — or most of it anyway — is laying economic siege to Russia,” wrote Carl Weinberg, chief economist at High Frequency Economics.

The sanctions quickly caused damage. The Russian ruble plunged to a record low Monday. Depositors lined up at ATMs to try to withdraw their money from the embattled banking system. Cut off from Google Pay and Apple Pay, Russians were stuck at ticket booths at Metro rail lines.

The Institute of International Finance foresees the Russian economy enduring a double-digit contraction this year, worse even than its 7.8% drop in the Great Recession year of 2009.

Oxford Economics said evidence from wars ranging from the 1980-1988 Iran-Iraq war to the 1999 NATO bombing campaign against Serbia suggests that a staggering collapse of the Russian economy of 50% to 60% is possible.

HARD TIMES FOR EUROPE

With its dependence on energy from Russia, Europe’s economy is now especially at risk.

Natural gas prices shot up 20% after the war started, on top of earlier increases, and now are roughly six times what they were at the start of 2021. The gas price shock is feeding higher inflation and swelling utility bills. The result is that households have less money to spend, and hopes for a surge in consumer spending resulting from fewer pandemic restrictions and COVID-19 cases have diminished.

Escalating gas prices have caused what economists call “demand destruction” among industrial enterprises, like fertilizer makers, that use a lot of gas and have now slashed production. Farmers are paying more to run machinery and buy fertilizer. Germany’s economy, which sagged by 0.7% in the fourth quarter of 2021, would face a technical recession if it shrank again in the first three months of 2022.

The economic downdraft could be offset by an increase in German defense spending. In response to the Russian invasion, Chancellor Olaf Scholz has said the government would commit 100 billion euros ($111 billion) to a special fund for its armed forces and raise defense spending above 2% of GDP.

“The drag from higher prices and the negative confidence affect may lower real GDP growth in the eurozone from 4.3% to 3.7% for 2022,” said Holger Schmieding, chief economist at Berenberg bank.

NO SUPPLY CHAIN RELIEF

The world’s unexpectedly robust recovery from the pandemic recession left companies scrambling to find enough raw materials and components to produce goods to meet surging customer demand. Overwhelmed factories, ports and freight yards have meant shortages, shipping delays and higher prices. Disruptions to Russian and Ukrainian industries could delay any return to normal conditions.

Mark Zandi, chief economist at Moody’s Analytics, noted that Russia and Ukraine together produce 70% of the world’s neon, critical in the making of semiconductors. That is especially worrisome because the world, and automakers in particular, are already enduring a shortage of computer chips.

When Russia seized Crimea from Ukraine eight years ago, neon prices shot up 600%, though Zandi notes that chipmakers have since stockpiled neon and sought alternatives to Russian supplies.

Russia and Ukraine together supply 13% of the world’s titanium, which is used to make passenger jets and 30% of the palladium, which goes into cars, cellphones and dental fillings, Zandi said. Russia also is a major producer of nickel, used to produce electric car batteries and steel.

“It’s impossible for supply chains to catch up,” said Vanessa Miller, a partner at Foley & Lardner LLP who specializes in supply chains.

TROUBLE IN THE NEIGHBORHOOD

The conflict and sanctions will also do damage to Russia’s neighbors in Central Asia. As its own workforce has aged, Russia has turned to younger migrant workers from such countries such as Uzbekistan and Tajikistan. Those workers’ families have come to rely on the money they send home — remittances.

Even at the height of COVID-19 in 2020, remittances from Russia to Uzbekistan topped $3.9 billion and to Kyrgyzstan $2 billion, according to the Russian central bank.

“The pressure on the ruble, banking restrictions on foreigners and — in the long run — the collapse of the labor market in Russia will have an immediate and profound economic impact on Central Asia, “Gavin Helf, an expert on Central Asia for the U.S. Institute of Peace, wrote this week.

A STRAIN ON FOOD SUPPLIES

Ukraine and Russia account for 30% of the world’s exports of wheat, 19% of corn and 80% of sunflower oil, which is used in food processing. Much of the Russian and Ukrainian bounty goes to poor, unstable countries like Yemen and Libya.

The threat to farms in eastern Ukraine and a cutoff of exports through Black Sea ports could reduce food supplies just when prices are at their highest levels since 2011 and some countries are suffering from food shortages.

Anna Nagurney, a management professor at the University of Massachusetts Amherst, described the consequences as “extremely troubling.”

“Wheat, corn, oils, barley, flour are extremely important to food security,” Nagurney said, “especially in the poorer parts of the globe.”

With ports, airports and rail lines closed and young Ukrainian men fighting the Russian invasion, she asked: “Who’s going to be doing the harvesting? Who’d be doing the transportation?”

RISING PRICES

The Ukraine war coincides with a high-risk moment for the Federal Reserve and other central banks. They were caught off-guard by the surge in inflation over the past year — the consequence, mostly, of the economy’s unexpectedly strong recovery.

In January, U.S. consumer prices rose 7.5% from a year earlier, the biggest such jump since 1982. In Europe, figures out Wednesday are likely to show that inflation accelerated to 6% last month from 5.1% in January for the 19 countries that use the euro currency.

Now, the fighting and sanctions that have disrupted Russia trade with the global economy threaten to send prices ever higher, especially for energy: Russia and Ukraine, Zandi said, together produce 12% of the world’s oil and 17% of its natural gas.

To combat inflation, the Fed is set to begin raising interest rates when it meets in two weeks, reversing the ultra-low-rate policies it adopted in 2020 to help rescue the economy from the pandemic recession. Likewise, the European Central Bank is gradually withdrawing its pandemic stimulus efforts.

But now? Central bankers must weigh intensifying inflationary pressure against the risk that the Ukraine crisis will weaken economies. In Europe, for now, “any hints of rate hikes are out of the question,” Carsten Brzeski, chief of global macro at ING bank.

Yet the Fed, roundly accused of being slow to recognize inflation’s resurgence, may continue its shift away from easy-money policies.

Barring a stock market collapse or a broadening of the war beyond Ukraine, Zandi said, “I don’t expect any change in the Fed’s conduct of monetary policy as a result of the economic cross-currents created by the Russian invasion of Ukraine.”

- AP

As the Ekushey Boi Mela (Book Fair) 2024 crossed its seventh day yesterday, publishers and book sellers are hopeful for increased sales and public engagement, despite not yet reaching their anticipated sales targets.

The Dhaka Metro Rail has infused the fair with a new vibrancy, making it more accessible for visitors from distant areas like Uttara, Mirpur, and Motijheel. Ovi Islam, from Farmgate, shared his positive experience of using the metro rail to bypass traffic jams, despite the initial long wait for tickets.

Although some visitors, like Ovi who visited the fair three times without purchasing books, contribute to the growing foot traffic, the overall sales have yet to see a significant boost.

Another group of visitors from Uttara noted the ease of accessing the fair this year, thanks to the metro rail, which has offered a way to avoid the infamous Dhaka traffic congestion.

Book sellers expressed mixed feelings about the fair's progress. While visitor numbers are on the rise, actual book purchases remain lower than expected. Nur Hossen Sarkar from Anupam Prokashoni observed that many attendees are more interested in browsing than buying. Similarly, Mohammad Jabed from Mowla Brothers noted a slight decrease in sales compared to the initial days but remains hopeful for an uptick in activity.

Some exhibitors have faced challenges with their stall placements, leading to visibility and accessibility issues. Sumon Saj from Nongor Publication voiced concerns about being allocated a less favorable location and has reported the issue to Bangla Academy without seeing significant action.

Some publishers also expressed dissatisfaction about the overall arrangement and environment. These issues suggest that while the metro rail has made the fair more accessible, improvements are still needed in its organization and visitor experience.

With the fair still underway, publishers and sellers are optimistic about a surge in sales and visitor numbers, especially with the upcoming weekend.

-UNB

Private sector’s Shahjalal Islami Bank is in trouble with realisation of the loan from Dhaly Construction and grant of new loan of Tk 408 crore to the company. The loan was disbursed without adequate collateral and verifying the financial status of the customer.

According to the report of Bangladesh Bank, the then managing director and board of directors, along with the officers of the relevant departments of the bank's branch and head office, cannot avoid the responsibility of this irregularity, said a report of the Bangladesh Bank.

It is known that Dhaly Construction took a loan of Tk 129 crore in 2013 from Trust Bank's Dilkusha branch in the capital. At the end of 2015, the loan amount increased to Tk 156 crores.

In November 2015, Dhaly Construction applied to Shahjalal Islami Bank to acquire the Trust Bank loan. Dhanmondi branch of Shahjalal Islami Bank acquired Dhaly Construction Limited's loan of Tk 118 crore from Trust Bank in December of that year.

In December, Shahjalal Islami Bank disbursed an additional Tk 188 crore funded and Tk 70 crore unfunded loan to Dhaly Construction Limited. In August 2017, Shahjalal Islami Bank gave another loan of Tk 115 crore. Of this, 85 crores are funded and 30 crores are non-funded. But Shahjalal Islami Bank could not tell Bangladesh Bank how much money has been loaned and against which assets.

According to the report, Shahjalal Islami Bank gave the loan forcefully to Dhaly Construction due to the failure of various companies to pay their debts. As a result, at the end of April this year, the amount of loan disbursed by Shahjalal Islami Bank to Dhaly Construction stood at Tk 408 crore. Out of this, 350 crore are funded and 58 crore non-funded.

Shahjalal Islami Bank was unable to collect the money despite repeated efforts. Dhaly Construction has mortgaged 721 acres of land and a building measuring 37,000 square feet as security against the loan.

In this regard, a deputy managing director of Shahjalal Islami Bank, on condition of anonymity, told the media that “Dhaly Construction is in a good position among the country's construction companies. We have business relationship with them since 2015. The company is facing big challenges due to the epidemic. Although we are hopeful of recovering the loan, it will take more time to get the money back.”

Regarding cashing the bill of Dhaly Construction through another bank instead of Shahjalal Bank, the Deputy Managing Director said that Dhaly Construction did this due to the need for cash. They thought that if they deposit the bill in the bank, the money will be deducted to pay off the loan.

However, when asked about the violation of the bank's board of directors policy in disbursing loans, he refused to make any comment.

Dhaly Construction chairman Rafique Uddin told the media that “Our company has implemented large road and construction projects including several university buildings in the country. We have been facing challenge since Covid pandemic as some our projects had to be stopped. Moreover, the abnormally high prices of construction materials also increased the project cost."

When asked about repayment of loan from Shahjalal Islami Bank, he said that new projects will be taken up and the loan will be repaid. The business relationship with the bank will also continue.

Dhaly Construction Advisor MM Mizanur Rahman told the media that there were some errors in the documents. It will be resolved quickly. He said, the bank can collect the debt by selling the company's assets. Apart from this, the company is involved in several construction projects. If the work of these projects is completed, the loan can be paid.

According to the central bank report, it was directed by the Board to take security equal to the investment while disbursing the loan. But, only Tk 90 crore of collateral (land and building) was taken against the funded loan of Tk 188 crore. The board was not informed of the investment with less security.

According to the report, Shahjalal Bank could not provide any information to the central bank's inspection team about the amount of money invested against specific work orders and the number of bills received in respect of those work orders.

The report said that the board of the directors of the bank advised taking a legal opinion before approving funded loans of Tk 188 crore and non-funded loans of Tk 70 crore and mortgaging 721 khata land. But the bank did not take into consideration the legal opinion while giving the loan. As no collateral is taken for new loans, the bank's investment becomes risky.

Country's both the bourses, Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) today plunged further due to mainly price fall in large-cap securities.

DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), slid 65 points, or 1.01 per cent, at 6,413 at the end of the day. The DS30, the index that consists of blue-chip companies, went down 0.93 per cent to 2,277, while the DSES, the Shariah-complaint index, plummeted 0.80 per cent to 1,406.

Turnover at the DSE dropped 3 per cent to Taka 1,297 crore which was Taka 1,343 crore on the previous day.

At the DSE, 26 stocks advanced, 153 declined and 182 did not show any price movement.

Bangladesh Monospool Paper Manufacturing topped the gainers' with an 8.64 per cent rise. Fine Foods, Rahima Food Corporation, Eastern Cables, and Eastern Lubricants also advanced over 5 per cent.

Apex Foods suffered the highest correction, sliding almost 13 per cent. Far East Knitting, BDCOM Online, Navana CNG, and Apex Spinning declined more than 9 per cent.

The CASPI, the all-share price index of the Chattogram Stock Exchange, decreased 164 points, or 0.86 per cent to end at 18,895.

Of the issues on the port city bourse, 34 advanced, 104 declined, and 80 remained unchanged.

- BSS

The Executive Committee of the National Economic Council (ECNEC) today approved six projects with Tk 7,018 crore.

The meeting was held under the chairmanship of ECNEC Chairperson and Prime Minister Sheikh Hasina on Tuesday (October 11).

The premier joined the meeting virtually from her official Ganabhaban residence here while ministers, state ministers, planning commission members and secretaries concerned were connected to it from the NEC Conference Room in the city's Sher-e-Bangla Nagar area.

After the meeting, Planning Minister MA Mannan gave details in the press conference.

thousand 362 crore 63 lakh will come from the government funding, Tk 2 thousand 386 crore 48 lakh from foreign funding and Tk 269 crore 62 lakh from the organization's own funding. 

The remittance inflow sinks to lowest in seven months. The inflow of remittance dropped around 25% in September to $1.54 billion compared to August earnings. 

Bangladesh received $2.04 billion in remittances in August, according to central bank data published Sunday (2 October).

The total remittance inflow in the current financial year is $5.67 billion, which was $5.41 billion during the same period last year.

According to experts, the cost of living for expatriates increased due to global inflation. Additionally, they are preferring hundi over legal remittance channels as they are getting Tk5-6 per dollar more than the bank exchange rate.

They had expressed concern that the Hundi channel may become more active. 

Remittances dropped to a seven-month low in September as the central bank fixed the dollar exchange rate for inward remittance. Bangladesh received a lower remittance of $1.49 billion last February.

Bankers said the downfall happened after, on the advice of the central bank on 12 September, the banks fixed the dollar exchange rate for remittances at Tk108.

However, bankers had initially feared that remittances may decrease due to fixing the exchange rate. The exchange houses said that the remittances came in less in the first week after the rate was fixed as remitters could not be given higher rates. 

A visit to the website of several exchange houses including Moneygram and Western Union shows that they are paying Tk106-107 per dollar for remittance inflow. However, the houses also charge $1-2 as transfer fee. 

As a result, those who send remittances in small amounts do not get an average rate of more than Tk104-105 a dollar. 

At present remittance through Hundi yields Tk113-114 per dollar. Due to fixed exchange rate at banks, the difference between dollar price of Hundi and the banking channel is at least Tk6-7.