29 March 2022

Written by Cephas Forichi - Lecturer - School of Investment & Banking 

The Russian-Ukrainian war has consequences for the South African economy despite being fought far from the country’s borders.

Imports from Ukraine averaged 0.05% of SA’s total import bill for the past three years, with electrical machinery, equipment and parts for sound equipment claiming a lion’s share (37.73%) last year, toppling cereals (5%) from the top spot. The insignificant import bill is not a point of celebration for SA as contagion effects and indirect channels are expected to negatively impact the SA’s economy. Crude oil prices are expected to rise further, negatively weighing on production, feeding into cost-push inflation. Moreover, increasing food prices on the international market, stemming from shrinking Ukrainian output and food hoarding by other countries, will be a drag on the South African economy. To curtail inflation, the Reserve Bank is expected to hike interest rates, further dampening production and aggregate demand.

Yields on Treasuries are steepening, increasing the borrowing costs for the country's already elevated public debt. Commodities are losing steam after the war-induced rally, which is bad news for the SA’s economy.