100 days of Ukraine crisis: From markets to economy, pain across the board

Markets have been in turmoil since Russia’s military offensive in Ukraine began on February 24 amid tightening global liquidity conditions.

Equity markets in both emerging economies and outside have taken a hit, though emerging markets are worst affected, shows an analysis of key data points before and after the crisis began (see chart 1).

Data points in the analysis have been used as available. For example, index data provider MSCI had announced that it may no longer provide information on Russian securities as part of its indices. 

Other information has been used to give a picture of the after-effect of the military offensive as available. Most currencies have depreciated against the US dollar, with the exception of Russia, which saw a bounce after the initial volatility (see chart 2).

The prices of oil and other commodities have gone up. The Bloomberg Commodity Index has risen. Food price indices also show a rising trend (see charts 3, 4). The resultant rise in inflation has been significant in most countries including those that have traditionally seen lower inflation in recent decades (see chart 5).

Central banks have reacted by attempting to raise interest rates. Most key ones already had plans to increase interest rates as part of the rollback of stimulus to soften the economic effects of the pandemic. 

While India has raised its key rate by 40 basis points, others like Brazil have increased it by 200 basis points since the Ukraine crisis began (see chart 6). 

The resultant rise in borrowing costs has a dampening effect on economic activity. Government yields are said to be signalling tighter liquidity conditions going forward (see chart 7).