One Year On

The true root problem

Ukraine was invaded by Russia at this time last year. Russia’s “special military operation” (Putin’s words, not mine) was supposed to last only days, but we are now into its second year. There can be no doubt that the Ukrainian people have paid by far the highest price so far, and that the price we have paid in the west – mostly higher food and energy prices which have led to falling living standards (Exhibit 1) – is miniscule in comparison.

Exhibit 1: Global real disposable income, year-on-year %

That said, my inkling is that this could go from bad to worse this year, as I am under no illusions about Putin. He is not going to withdraw his forces from Ukraine without some concessions that he can present as a victory back home. The western alliance (Ukraine included), on the other hand, cannot allow those concessions to be meaningful, as that will encourage Putin to have a go at other countries in the former Soviet bloc.

This is a very hard one to resolve, hence why I think the war could drag out. It wouldn’t surprise me at all if we, a year from now, are no closer to a resolution than we are today. Having said that, most countries in the west have adapted reasonably well to the challenging conditions. Living standards are certainly down in many countries (living standards are always under pressure when the rate of inflation exceeds wage growth); however, most countries appear to have escaped a recession – at least for now.