We take a look at global economic updates or interesting key developments that investors can take note of. Firstly, we zoom in on the sharp escalation in tension between Russia and Ukraine after Ukrainian forces said they killed five pro-Russian militants. Next up, we’ll be looking at U.S. President Barack Obama’s visit to Japan to discuss the Trans Pacific Partnership.
Economic impacts due to rising Russia-Ukraine tension
Fresh clashes took place last Thursday when five pro-Russian militants were killed by Ukrainian forces. This enraged Russia, which begun new military drills near its eastern border with Ukraine. The U.S., in response, has vowed even stronger international actions targeted against Russia’s economy if the country refuses to try and diffuse the situation.
The rising tension in lieu of the events happening in Russia and Ukraine may lead to a number of consequences for the global economy. Here are three of them:
1) A possible increase in Western economic sanctions that are placed on Russia will hit the latter badly in terms of investment and trade, among others. It seems that Russia has more to lose given that there are shoots of recovery for the global economy and being slapped with heavy sanctions would mean that Russia would be unable to partake in it.
2) Because of possible Western economic sanctions, Russia is threatening to cut supply of gas to European countries; Russia currently supplies almost one third of Europe’s total gas consumption. While this is likely to be a last resort, such an event would be a huge blow to both parties if matters get out of hand.
3) Russia, in addition to its status as a hugely-important supplier of energy, is a big importer and investor in Europe. Consequently, the region may stand to lose up to US$170 billion in annual exports to Russia – not to mention the loss of gas supply if Russia decides to cut the spigot – if economic sanctions are put in place.
It is worth mentioning that in the wake of current events in Russia and Ukraine, there are Singaporean-listed companies that are at risk. The most prominent one would have to be Food Empire (SGX: F03); a huge chunk of the company’s revenue is derived from those two countries currently at odds with each other.
The high stakes Trans Pacific Partnership (TPP)
As reported by British newswire BBC News, U.S. president Barack Obama recently visited Japan to discuss the TPP, an economic partnership that includes 10 more nations situated at the Pacific Rim, namely Malaysia, Brunei, Australia, Singapore, New Zealand, Mexico, Canada, Peru, and Chile. These 12 nations collectively account for almost 60% of the world’s total GDP and controls around a quarter of global trade.
If the TPP is successfully put in place, it will create the largest free trade area in the world which would add US$305 billion annually to global exports according to U.S. estimates. Half of that will be through an increase in US exports of US$123.5 billion.
For Japan, the TPP also carries great promise. It’s estimated to be able to help increase Japan’s gross domestic product (GDP) by 1.5% in addition to raising per capita growth in the country to 2%. The former would nearly double Japan’s sluggish rate of growth it had experienced over its past 2 decades while the latter, if eventually proven true, could help lift the country from its prolonged stagnation.
While expectations regarding the TPP are very high, it is not an easy partnership to put in place. Nevertheless, as Singapore is a part of the visualized future of the TPP, exporters based in Singapore – with STATS ChipPAC (SGX: S24) and Serial System (SGX: S69) being just two examples – could have a huge tailwind behind their backs in the future.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo does not own shares in any companies as mentioned.