Economics Invasion of Ukraine Commentary

Global Macro Outlook - Second Quarter 2022

March 30, 2022
2 min read

What You Need to Know

The war in Ukraine won’t impact every country the same, but it will be felt disproportionately in Europe and in those emerging markets with exposure to Russia and Ukraine. The outlook is less grim beyond Eastern Europe, though knock-on effects of the conflict will persist.

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Key Forecast Trends

  • The magnitude of the war’s impact on growth and inflation will be determined by how much and for how long energy prices rise.
  • The war, economic sanctions and the associated rise in energy costs are likely to exacerbate global shipping impediments, too, which had begun to recover from the pandemic.
  • We expect most central banks to continue tightening monetary policy, even as consumers face a hit to real incomes from rising energy prices.
  • Perspective is important: the reopening from COVID-19 pushed global economic growth well above long-term trends, and US households in particular now have a reservoir of savings that will allow them to smooth consumption through trying times.
The Global Cycle for 2Q:2022
The Global Cycle for 2Q:2022

Forecast Overview

Key Assumptions
 

  • Geopolitical: The war in Ukraine is likely to keep commodity prices elevated for some time to come.
  • COVID-19: Caseloads may rise, but we do not expect widespread economic disruption.
  • Fiscal policy: European fiscal policy may mitigate some downside risk from the war.
  • Monetary policy: Rates will move higher and faster than previously anticipated.

Central Narrative
 

  • Global growth: Challenged consumers have to allocate more money to commodity-based essential goods.
  • Inflation: Rising commodity prices will push inflation higher and keep it there for longer.
  • Yields: Tighter monetary policy will push yields up and flatten yield curves.
  • USD: Stronger for now, as the Fed pulls ahead of other central banks in policy tightening.

Key Assumptions
 

  • A timely resolution to the Ukraine war could provide relief through lower commodity prices.
  • Fiscal authorities could provide significant relief to consumers struggling with higher energy prices.

Key Downside Risks
 

  • A protracted military conflict could dampen sentiment throughout Europe and beyond.
  • Inflation expectations could de-anchor, forcing very aggressive monetary-policy tightening.

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