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The Economic Impact of the Situation in Ukraine

March 5, 2014
While the situation in Ukraine remains a political issue, it is unlikely to develop into an economic one, both globally and for the US specifically.

Events in the Ukraine have captured the attention of political leaders and the media.  Russia’s move into the Crimea Peninsula has set off a wave of protests from the US and other nations.  The isolation of Russia and sanctions against them are being talked about in Washington if Mr. Putin does not withdraw forces forthwith.  Does any of this impact our forecast for the US?  Not really, at least not yet.  The US economy is so large that it can easily absorb the economic disruption in a smallish economy (Kentucky has the same general output as the Ukraine).  They matter, but they are not globally important.

Furthermore, neither the Ukraine nor Russia has any long-lasting incentive to stop exporting food to Europe or to stop the transfer of oil/gas from Russia to Europe.  Russia needs the hard currency, as does the Ukraine.  Thus there is not likely to be an extended disruption of crucial commodities which diminishes the potential for a global “crisis”.

It is a very good time to be cautious of near-term future investments in Russia; it is really too late to do much about investments currently committed there.  An isolated Russia is not conducive to a significant return on investment.    

This is a huge political crisis, but for most Americans and Europeans it will likely remain only a political issue, and not an economic one.

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