Select Page

The conflict between Russia and Ukraine will affect the global economy via three main channels: financial sanctions, commodities prices and supply-chain disruptions.

The article presents forecasts for each of these areas and summarises the latest views on the impact that the war in Ukraine will have on global inflation and growth.


Sanctions will make trade with Russia difficult On February 28th the US unveiled a sanctions package targeting the Central Bank of Russia (CBR), with the EU following suit, preventing the CBR from accessing about half of the US$643bn that it holds in foreign-exchange reserves. The economic impact of these financial sanctions will be small outside Russia, although Western companies

that are highly exposed to Russia will still be affected. As a result of these sanctions, global companies will struggle to find financial channels through which to conduct trade with Russia.


Coupled with disruptions to transport routes between Russia and the rest of the world, these sanctions will make trading with Russia extremely difficult. Inflation jumps as commodity prices rise We expect that the most serious effect of the Russia-Ukraine conflict for the world economy will come in the form of higher commodities prices. Our core assumption is that neither the EU nor the US will impose a ban on Russia’s hydrocarbons exports.  However, prices for oil and gas, as well as for base metals and grains, will still rise. Oil prices will remain above US$100/b as long as conflict rages in Ukraine. Higher commodities prices will fuel global inflation, which will surpass 6% this year. Despite risks to global growth, we do not expect the Federal Reserve (the US central bank)

and the European Central Bank to significantly change course on monetary tightening.


Global growth will take a hit the economic impact of the conflict will be felt mostly in Ukraine and Russia, which will both experience sharp recessions this year. Eastern European countries that are

most exposed to trade with Russia, such as Lithuania and Latvia, will also take a hit. Elsewhere in Europe, the EU will suffer from an energy, supply-chain and trade shock.

We will be revising down this year’s growth forecast for Europe, to about 2% (from 3.9% previously). Looking beyond Europe, we are not revising our forecasts for growth in the US (3.4%) and China (5.2%); in both cases, real GDP growth has been strong in recent months.


However, downward revisions to Europe’s growth outlook will prompt us to revise down our global growth forecast by 0.5 percentage points, to about  3.4%.