MACROECONOMIC IMPACT OF THE RUSSIA AND UKRAINE CONFLICT ON THE GROSS DOMESTIC PRODUCT OF SERBIA

Abstract

The conflict between Russia and Ukraine comes at a time when countries worldwide are still recovering from the destabilizing effects of the global COVID-19 pandemic, which has caused deep economic regression, significant loss of productivity, worsening inequality, planetary pressures, and in some cases, security challenges. The economic impact reverberated through multiple channels, including commodity and financial markets, trade, and migration links. At the same time, rising inflation is increasingly reducing the purchasing power of consumers. Such market tensions will reduce economic activity while accelerating inflation with the appearance of stagflation, where a general jump in prices and a decline in production characterize the state of the economy. The direct effects of this conflict lead to macroeconomic instability. This conflict causes a jump in global prices and affects economies worldwide. One can expect that developing markets and countries in the European region, especially the Western Balkan, will bear the brunt. On the side of macroeconomic stability, the effects differ depending on their exposure to the market of Russia and Ukraine. The Republic of Serbia does not have significant, direct trade ties with Ukraine, but the conflict faced Serbia with new challenges, considering Serbia's energy dependence on Russia, as well as the agricultural sector, where products, primarily fruit, have a significant share in total exports to Russia. The crucial question is in which direction the conflict will affect the macroeconomic stability of the Republic of Serbia.