How War Shakes the World... 12 Disruptions Selected by McKinsey [Ukraine Shockwave②]

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[Asia Economy Reporter Jeong Hyunjin] Russia's airstrikes on Ukraine have evolved beyond a European geopolitical crisis to become a global economic risk. As the war prolongs, its ripple effects are spreading across the global economy, impacting energy, raw materials, stock markets, and inflation. On the 9th (local time), the global consulting firm McKinsey summarized the economic turmoil affecting our lives into 12 key points beyond the immediate crisis.

Increase in Refugee and Vulnerable Group Damage

The Ukraine war has produced the largest number of refugees in Europe since World War II. Refugees are flowing into neighboring countries such as Poland, Slovakia, and Hungary, potentially causing social unrest. McKinsey explained that the impact will vary depending on how much immigrants integrate into the labor markets and societies of these countries in the future. Prices of essential goods like food and energy, which are soaring due to the war, are delivering a greater shock to economically vulnerable groups.

Countries with high energy dependence on Russia, such as Germany, France, and Italy, urgently need to devise countermeasures. McKinsey stated, "Europe could implement short-term measures to reduce energy demand by lowering building heating and urban lighting usage by the end of this year or early next year." McKinsey forecasted that Russia's share of Europe's total gas consumption will drop from 36% last year to 10% by the fourth quarter of this year.

Supply restrictions on raw materials produced by the two warring countries, such as coal, steel, nickel, and palladium, are driving up prices of finished products as well. McKinsey analyzed that automobile manufacturers are likely to raise product prices by 15-25% due to increased costs of aluminum, copper, and steel.

Corporate Management Risks

Amid an already strained supply chain crisis caused by COVID-19, companies are now facing another 'black swan' event?the war?and the need to prepare for contingencies has grown. Securing dual supply sources has become crucial, and discussions on nearshoring and onshoring are underway. At the same time, global companies operating in Russia are at a crossroads, needing to decide whether to continue their business there.

Additionally, the possibility of a split in global technology standards shared by telecommunications, media, and technology companies between Western countries led by the U.S. and Europe and Russia has increased. While the financial system is expected to face limited direct impact from the war, predicting the broad risks that may arise later has become difficult. Alongside this, there could be increased defense spending, instability in equipment and raw material supply, and disruptions caused by cyberattacks. In a McKinsey survey conducted in March, business leaders identified geopolitical risks as the greatest threat to economic growth, surpassing the pandemic and inflation.

McKinsey analyzed, "These disruptions are already affecting people's lives and are factors that every company must consider when creating management scenarios," adding, "The longer the war continues, the stronger and more unpredictable these disruptions may become."

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