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How to Make the Right Business Decisions During the Russia and Ukraine War

By Connor Lokar on March 11, 2022

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Connor Lokar

As a millennial, Connor brings a new perspective to the world of economics, delivering ITR’s industry-leading accuracy to current C-suite executives while forging connections with the next generation of business leaders.

Another black swan is upon us, this time in the form of the evolving Russian invasion of Ukraine. An event such as this always brings an immense amount of noise for business owners and executives to filter as they try to guide their business through the storm. So, how do you make the right business decisions during the Russia and Ukraine war?

To navigate these newly turbulent waters, it is important to not overreact to the day-to-day moves in financial or commodity markets and to instead focus on what is fundamentally important to your business.

As many of you have likely noticed, daily data for most commodity prices and for global financial markets has been severely volatile, mostly to the upside for commodity pricing trends and overall to the downside for financial markets.

Following the day-to-day swings is exhausting and ultimately not very productive from our vantage point as forecasters or yours as someone running a business.

3 Factors to Monitor With Economic Impact of Russia and Ukraine War

We have explained in prior bulletin announcements, sent out to ITR Trends Report™ subscribers last week, that we are monitoring three factors when it comes to determining the likely economic impact of this conflict: duration, breadth, and weaponry used.

These factors are still very much in flux, so for now we are relying on the underlying economic factors, which have not significantly changed since the geopolitical disruption began. Inflation and supply chain pressures predate the Ukraine conflict, though they have obviously worsened.

ITR has also been factoring in a less exuberant demand environment for 2022 since before the conflict intensified; we feel the additional inflation-related stress on the consumer and general market pessimism that are byproducts of this conflict further reinforce our position regarding slowing demand conditions in 2022 and into 2023. What’s unfolding is certainly a downside risk to our thinking, but not one that has manifested in forecast downgrades – at least not yet.

Will ITR Economics Change its Forecasts in Response to Russia and Ukraine?

We are watching the situation closely and will update our commodity and macroeconomic forecasts as necessary when more comes to light regarding the duration and severity of the conflict and related economic sanctions. Our expectation is that surging commodity prices – notably oil, nickel, and wheat, along with most others – will resolve themselves lower when the conflict reaches a conclusion and the attention currently captured by political strife pivots back to economic fundamentals, which indicate a more sober demand and inflation environment later this year.

A recent example of how quickly things, particularly commodities, can swing is crude oil. Oil futures swung negative in April 2020 at the height of the COVID-19 shutdowns and uncertainty before quickly rallying back above zero and embarking on a fundamentals-driven trend of general rise that persisted into early this year. We are now experiencing the other side of the knife’s edge; this time it is a supply-side shock to the upside rather than an anomalous demand shock to the downside.

[ Read more: Further analysis on the economic disruption of the Russia and Ukraine war. ]

While daily coverage of the conflict and financial markets certainly makes for compelling TV, it is unlikely to help you manage your business more effectively. When the skies get dark and visibility dims, it is time to defer to your instruments – in our world, those are leading indicators.

When many folks were lamenting the position of their reeling businesses in May and June of 2020, on the heels of devastating shutdowns, ITR subscribers and our consulting clients were the first to see reversals in their predictive datapoints. These inputs told them that the dark skies were going to quickly clear, with surging demand beckoning on the other side.

At this stage in the business cycle, we are heading into darker clouds; now we must rely on our instruments and datapoints to tell us how dark the clouds will get and how turbulent the ride will be. As we were heading into this conflict, most of the leading indicators favored by ITR and our clients had already been declining for multiple quarters; moving forward, we will be watching them to see how much more downside is implied as a result of what’s happening in Europe.

It is not easy to cut through the noise and make the right business decisions at times of conflict in the world. Leading indicators do not predict black swans, but they help us navigate such occurrences, and they tell us what comes next. If you have not historically relied on leading indicators for your business, this is a good time to start.

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