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‘Dark days’ ahead as war shocks construction, other sectors

The experts are agreed that the Russia-Ukraine war is wreaking havoc not just on the people and infrastructure of Ukraine with non-stop aerial and long-range missile bombardment since Russia invaded the sovereign country on February 24. The war is also taking an exacting toll on the entire world through astronomical price increases and exacerbated supply disruptions. Just when it was thought that the COVID-19 pandemic-induced inflation and shortages were unprecedented, the impact of the latest conflict in eastern Europe is likely to dwarf the economic upending from the pandemic.

Along with food prices that are already running away, construction costs are set to soar further, with dire predictions emanating from the sector. Building materials trader and construction industry expert Deanall Barnes says that already, supplier prices for steel have moved up 30 per cent since the start of the year and will go even higher because of the positions Ukraine and Russia straddle in the world metals market.

“Jamaica and several countries in the region all import their steel from Turkey. With most of their raw materials coming from Russia and Ukraine, there are dark days ahead, even as we have had the price increases,” Barnes told the Financial Gleaner this week.

Imported steel is used in several aspects of construction, including for reinforcement bars, as raw as material for making nails, and as roofing.

According to David Zervos, chief market strategist for multinational investment bankers Jefferies LLC and a former adviser to the US Federal Reserve, the ongoing Russia-Ukraine crisis is likely to push up the cost of goods and services even more than the COVID-19 pandemic did.

“It becomes more costly to produce goods and services because commodity prices rise, and inputs to production rise, global supply chains get stressed, and manufacturing bottlenecks increase,” Zervos said at a thought leadership webinar hosted by JMMB Investments on Wednesday.

For the global investment adviser, the reality of the economic feedback into financial markets as a result of the war, is that there will be a supply shock on the aggregate demand for goods and services. This, he said, results from negative supply shocks from the disruption of shipping arrangements and supplies from the two countries at war.

Ukraine and Russia account for more than a quarter of global trade in wheat, used in everything from bread and noodles to livestock feed. The conflict has closed major ports in Ukraine, and severed logistics and transport links. Trade with Russia has also been stifled by the complexity of trying to navigate sanctions and soaring insurance and freight costs, according to various economic reports.

Markets Insider reports that the price of wheat for delivery in April closed at US$386 per tonne, down from US$422 one week ago, representing a 44 per cent increase in wheat prices since January.

This, and more, are pointing to additional worrying signs for global economy watchers. Zervos, for example, concludes that the fragile recovery from the pandemic, coupled with the Ukrainian conflict, is threatening to deal more damaging blows to the US economy, with knock-on effects for regional economies such as Jamaica’s

“So many of the things that we saw because of COVID – and we should also highlight that COVID is making a bit of a comeback in Asia – so that’s another exacerbating force here,” he noted.

Commenting on US monetary policy response to the unfolding economic crisis, the investment adviser pointed to what he said are definite supply-side inflation risks that the US Federal Reserve, in his view, will have to deal with in short order, over and above its recent interest rate hike.

“The Fed’s is going to have to recognise that and deal with it, to the extent that there is feedback into policy. I would focus less on what it means for growth and more on what it means for inflation. The focus is inflation, the focus is not growth,” Zervos said of near-term prospects for the US economy.

Manufacturer Richard Pandohie, the CEO of major food distributor Seprod, has pointed out that tightening supplies and the search for new arrangements have put the squeeze on countries like Jamaica, even in cases where they do not normally deal directly with the countries at war.

“Companies that would normally source, say, wheat from Ukraine, for delivery to, say, Africa, are now coming to our suppliers, affecting availability and driving up prices. It really doesn’t matter if we buy from Ukraine, once there is a conflict, the interrelated global supply chain gets hurt,” Pandohie told the Financial Gleaner this week.

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