The war launched by Russian President Vladimir Putin against Ukraine and the fierce financial backlash it has unleashed is not only beginning to wreak havoc on Moscow’s economy but on the entire planet. While global finances were already under pressure before the attack, now the repercussions of the sanctions are shaking markets and having an effect on inflation, especially from the energy industry.
Russia’s war in Ukraine magnifies every financial threat the world has been dragging behind the pandemic lockdowns.
Angered by Putin’s aggression, the United States and other Western nations have targeted Moscow with harsh and unprecedented sanctions on a top-tier economy. They have kicked out the major Russian banks from the Swift international payment system, limited high-tech exports to Russia, and severely curtailed Russia’s use of its foreign exchange reserves.
Economic experts point out that at least for now and in general terms, the effects are relatively slight, but it will depend to a large extent on the prolongation of the conflict. With its heavy reliance on energy from Russia, Europe’s economy is now especially at risk.
Natural gas prices soared 20% after the large-scale attack began and are now about six times higher than they were in early 2021.
The gas price crisis is fueling higher inflation and rising utility bills. The result is that households have less money to spend and hopes of an increase in consumer spending have dimmed despite the fact that several countries begin to live with fewer restrictions due to the Covid-19 pandemic.
“The drag of higher prices and the negative effect of confidence may reduce real GDP growth in the eurozone from 4.3% to 3.7% by 2022,” said Holger Schmieding, chief economist at Berenberg bank.
Rising gasoline prices have caused what economists call “demand destruction” among industrial firms, such as fertilizer makers, that use a lot of gas and have now cut production.
On the other hand, farmers are paying more for the operation of machinery and the purchase of fertilizers. Germany’s economy, which sank 0.7% in the fourth quarter of 2021, would face a technical recession if it contracted again in the first three months of 2022.
In the aftermath of the pandemic downturn, companies were left struggling to find enough raw materials and components to produce goods to meet growing customer demand. Overwhelmed factories, ports and freight yards have meant shortages, shipping delays and higher prices. Now, disruptions in Russian and Ukrainian industries could further delay the return to normal conditions of economic flow.
Russia and Ukraine together supply 13% of the world’s titaniumwhich is used to make airplanes, and 30% palladiumused in the production of automobiles, cell phones and dental fillings, points out Mark Zandi, an economist at Moody’s Analytics.
Moscow is also a major producer of nickel, which is used to make steel and batteries for electric cars.
“It’s impossible for supply chains to catch up,” said Vanessa Miller, a partner at Foley & Lardner LLP, a supply chain organization.
The Eurozone will observe 6% inflation, the highest in two decades
With energy prices soaring due to the war, inflation will top 6% this March, analysts say, and even the full annual average will top 5%, more than double the 2% target set by the European Central Bank (ECB).
In February, inflation in the 19 countries that share the euro accelerated to 5.8% after 5.1% in January, the highest figure in the bloc’s two decades, beating expectations of 5.4% and also confounding the ECB’s projection of a fall, Eurostat data showed on March 2.
Last month, energy costs rose 32% and were already driving higher inflation. Unprocessed food prices also rose sharply, to 6.1%, making inflation especially painful for low-income families.
With price pressures having been building for months, the ECB was almost certain to accelerate its exit from ‘ultra-loose’ policy, but the conflict has upended those plans, leaving the political landscape uncertain.
“If price stability requires it, the Governing Council of the ECB must adjust the course of its monetary policy (…) We need to keep our eyes on the normalization of our monetary policy,” said the president of the Bundesbank, Joachim Nagel.
Still, political leaders have not entirely abandoned their calls for tighter policy, as price pressures are now widespread and not simply a function of a rise in oil prices.
While the war is likely to push prices above all forecasts this year, it will also be a negative for both growth and inflation in the long run.
High energy costs sap household purchasing power, squeeze corporate margins and weigh on investment. They are also likely to affect the price of other goods and services, particularly food costs, since natural gas is the biggest expense in fertilizer production.
“It is to be expected that the conflict over the macroeconomic channel and the channel of confidence and sentiment in the markets will end up having an impact from the point of view of higher inflation and lower economic growth,” said Luis de Guindos, Vice President of the ECB.
The most optimistic side about the effects of sanctions on Moscow
The Russian invasion of Ukraine will inevitably have a negative impact on European economic growth, but it will not plunge the bloc into full recession, economic analysts stress.
“I believe that we are not going to reach a recessionary situation. What we are going to have is higher inflation for longer and, secondly, lower economic growth,” De Guindos added.
“We’re actually in uncharted territory … We know there are consequences that we can’t predict,” said Clay Lowery, executive vice president of the Institute of International Finance, a trade group for global banks.
Experts remind that no matter how important they are as exporters of energy, precious metals, wheat and other basic products, the two together, Russia and Ukraine account for less than 2% of the world’s gross domestic product.
Most major economies have only limited trade exposure to Russia: for the US, it’s 0.5% of total trade. For China, around 2.4%.
Barring a long war duration, which is not impossible, “the effects on the US, China and most of the emerging world should be limited,” said Adam Slater, chief economist at Oxford Economics, who sees only a drop. 0.2% in global GDP this year.
In any case, Moscow is a vital fuel supplier in the European Union, with a greater dependence on Germany – one of the strongest economies in the bloc – so the effects threaten to inflict damage around the world.
Europe depends on Russia for nearly 40% of its natural gas and 25% of its oil. It’s a significant chance of skyrocketing inflation, another post-pandemic economic setback.
With AP and Reuters
The war launched by Russian President Vladimir Putin against Ukraine and the fierce financial backlash it has unleashed is not only beginning to wreak havoc on Moscow’s economy but on the entire planet. While global finances were already under pressure before the attack, now the repercussions of the sanctions are shaking markets and having an effect on inflation, especially from the energy industry.
Russia’s war in Ukraine magnifies every financial threat the world has been dragging behind the pandemic lockdowns.
Angered by Putin’s aggression, the United States and other Western nations have targeted Moscow with harsh and unprecedented sanctions on a top-tier economy. They have kicked out the major Russian banks from the Swift international payment system, limited high-tech exports to Russia, and severely curtailed Russia’s use of its foreign exchange reserves.
Economic experts point out that at least for now and in general terms, the effects are relatively slight, but it will depend to a large extent on the prolongation of the conflict. With its heavy reliance on energy from Russia, Europe’s economy is now especially at risk.
Natural gas prices soared 20% after the large-scale attack began and are now about six times higher than they were in early 2021.
The gas price crisis is fueling higher inflation and rising utility bills. The result is that households have less money to spend and hopes of an increase in consumer spending have dimmed despite the fact that several countries begin to live with fewer restrictions due to the Covid-19 pandemic.
“The drag of higher prices and the negative effect of confidence may reduce real GDP growth in the eurozone from 4.3% to 3.7% by 2022,” said Holger Schmieding, chief economist at Berenberg bank.
Rising gasoline prices have caused what economists call “demand destruction” among industrial firms, such as fertilizer makers, that use a lot of gas and have now cut production.
On the other hand, farmers are paying more for the operation of machinery and the purchase of fertilizers. Germany’s economy, which sank 0.7% in the fourth quarter of 2021, would face a technical recession if it contracted again in the first three months of 2022.
In the aftermath of the pandemic downturn, companies were left struggling to find enough raw materials and components to produce goods to meet growing customer demand. Overwhelmed factories, ports and freight yards have meant shortages, shipping delays and higher prices. Now, disruptions in Russian and Ukrainian industries could further delay the return to normal conditions of economic flow.
Russia and Ukraine together supply 13% of the world’s titaniumwhich is used to make airplanes, and 30% palladiumused in the production of automobiles, cell phones and dental fillings, points out Mark Zandi, an economist at Moody’s Analytics.
Moscow is also a major producer of nickel, which is used to make steel and batteries for electric cars.
“It’s impossible for supply chains to catch up,” said Vanessa Miller, a partner at Foley & Lardner LLP, a supply chain organization.
The Eurozone will observe 6% inflation, the highest in two decades
With energy prices soaring due to the war, inflation will top 6% this March, analysts say, and even the full annual average will top 5%, more than double the 2% target set by the European Central Bank (ECB).
In February, inflation in the 19 countries that share the euro accelerated to 5.8% after 5.1% in January, the highest figure in the bloc’s two decades, beating expectations of 5.4% and also confounding the ECB’s projection of a fall, Eurostat data showed on March 2.
Last month, energy costs rose 32% and were already driving higher inflation. Unprocessed food prices also rose sharply, to 6.1%, making inflation especially painful for low-income families.
With price pressures having been building for months, the ECB was almost certain to accelerate its exit from ‘ultra-loose’ policy, but the conflict has upended those plans, leaving the political landscape uncertain.
“If price stability requires it, the Governing Council of the ECB must adjust the course of its monetary policy (…) We need to keep our eyes on the normalization of our monetary policy,” said the president of the Bundesbank, Joachim Nagel.
Still, political leaders have not entirely abandoned their calls for tighter policy, as price pressures are now widespread and not simply a function of a rise in oil prices.
While the war is likely to push prices above all forecasts this year, it will also be a negative for both growth and inflation in the long run.
High energy costs sap household purchasing power, squeeze corporate margins and weigh on investment. They are also likely to affect the price of other goods and services, particularly food costs, since natural gas is the biggest expense in fertilizer production.
“It is to be expected that the conflict over the macroeconomic channel and the channel of confidence and sentiment in the markets will end up having an impact from the point of view of higher inflation and lower economic growth,” said Luis de Guindos, Vice President of the ECB.
The most optimistic side about the effects of sanctions on Moscow
The Russian invasion of Ukraine will inevitably have a negative impact on European economic growth, but it will not plunge the bloc into full recession, economic analysts stress.
“I believe that we are not going to reach a recessionary situation. What we are going to have is higher inflation for longer and, secondly, lower economic growth,” De Guindos added.
“We’re actually in uncharted territory … We know there are consequences that we can’t predict,” said Clay Lowery, executive vice president of the Institute of International Finance, a trade group for global banks.
Experts remind that no matter how important they are as exporters of energy, precious metals, wheat and other basic products, the two together, Russia and Ukraine account for less than 2% of the world’s gross domestic product.
Most major economies have only limited trade exposure to Russia: for the US, it’s 0.5% of total trade. For China, around 2.4%.
Barring a long war duration, which is not impossible, “the effects on the US, China and most of the emerging world should be limited,” said Adam Slater, chief economist at Oxford Economics, who sees only a drop. 0.2% in global GDP this year.
In any case, Moscow is a vital fuel supplier in the European Union, with a greater dependence on Germany – one of the strongest economies in the bloc – so the effects threaten to inflict damage around the world.
Europe depends on Russia for nearly 40% of its natural gas and 25% of its oil. It’s a significant chance of skyrocketing inflation, another post-pandemic economic setback.
With AP and Reuters
The war launched by Russian President Vladimir Putin against Ukraine and the fierce financial backlash it has unleashed is not only beginning to wreak havoc on Moscow’s economy but on the entire planet. While global finances were already under pressure before the attack, now the repercussions of the sanctions are shaking markets and having an effect on inflation, especially from the energy industry.
Russia’s war in Ukraine magnifies every financial threat the world has been dragging behind the pandemic lockdowns.
Angered by Putin’s aggression, the United States and other Western nations have targeted Moscow with harsh and unprecedented sanctions on a top-tier economy. They have kicked out the major Russian banks from the Swift international payment system, limited high-tech exports to Russia, and severely curtailed Russia’s use of its foreign exchange reserves.
Economic experts point out that at least for now and in general terms, the effects are relatively slight, but it will depend to a large extent on the prolongation of the conflict. With its heavy reliance on energy from Russia, Europe’s economy is now especially at risk.
Natural gas prices soared 20% after the large-scale attack began and are now about six times higher than they were in early 2021.
The gas price crisis is fueling higher inflation and rising utility bills. The result is that households have less money to spend and hopes of an increase in consumer spending have dimmed despite the fact that several countries begin to live with fewer restrictions due to the Covid-19 pandemic.
“The drag of higher prices and the negative effect of confidence may reduce real GDP growth in the eurozone from 4.3% to 3.7% by 2022,” said Holger Schmieding, chief economist at Berenberg bank.
Rising gasoline prices have caused what economists call “demand destruction” among industrial firms, such as fertilizer makers, that use a lot of gas and have now cut production.
On the other hand, farmers are paying more for the operation of machinery and the purchase of fertilizers. Germany’s economy, which sank 0.7% in the fourth quarter of 2021, would face a technical recession if it contracted again in the first three months of 2022.
In the aftermath of the pandemic downturn, companies were left struggling to find enough raw materials and components to produce goods to meet growing customer demand. Overwhelmed factories, ports and freight yards have meant shortages, shipping delays and higher prices. Now, disruptions in Russian and Ukrainian industries could further delay the return to normal conditions of economic flow.
Russia and Ukraine together supply 13% of the world’s titaniumwhich is used to make airplanes, and 30% palladiumused in the production of automobiles, cell phones and dental fillings, points out Mark Zandi, an economist at Moody’s Analytics.
Moscow is also a major producer of nickel, which is used to make steel and batteries for electric cars.
“It’s impossible for supply chains to catch up,” said Vanessa Miller, a partner at Foley & Lardner LLP, a supply chain organization.
The Eurozone will observe 6% inflation, the highest in two decades
With energy prices soaring due to the war, inflation will top 6% this March, analysts say, and even the full annual average will top 5%, more than double the 2% target set by the European Central Bank (ECB).
In February, inflation in the 19 countries that share the euro accelerated to 5.8% after 5.1% in January, the highest figure in the bloc’s two decades, beating expectations of 5.4% and also confounding the ECB’s projection of a fall, Eurostat data showed on March 2.
Last month, energy costs rose 32% and were already driving higher inflation. Unprocessed food prices also rose sharply, to 6.1%, making inflation especially painful for low-income families.
With price pressures having been building for months, the ECB was almost certain to accelerate its exit from ‘ultra-loose’ policy, but the conflict has upended those plans, leaving the political landscape uncertain.
“If price stability requires it, the Governing Council of the ECB must adjust the course of its monetary policy (…) We need to keep our eyes on the normalization of our monetary policy,” said the president of the Bundesbank, Joachim Nagel.
Still, political leaders have not entirely abandoned their calls for tighter policy, as price pressures are now widespread and not simply a function of a rise in oil prices.
While the war is likely to push prices above all forecasts this year, it will also be a negative for both growth and inflation in the long run.
High energy costs sap household purchasing power, squeeze corporate margins and weigh on investment. They are also likely to affect the price of other goods and services, particularly food costs, since natural gas is the biggest expense in fertilizer production.
“It is to be expected that the conflict over the macroeconomic channel and the channel of confidence and sentiment in the markets will end up having an impact from the point of view of higher inflation and lower economic growth,” said Luis de Guindos, Vice President of the ECB.
The most optimistic side about the effects of sanctions on Moscow
The Russian invasion of Ukraine will inevitably have a negative impact on European economic growth, but it will not plunge the bloc into full recession, economic analysts stress.
“I believe that we are not going to reach a recessionary situation. What we are going to have is higher inflation for longer and, secondly, lower economic growth,” De Guindos added.
“We’re actually in uncharted territory … We know there are consequences that we can’t predict,” said Clay Lowery, executive vice president of the Institute of International Finance, a trade group for global banks.
Experts remind that no matter how important they are as exporters of energy, precious metals, wheat and other basic products, the two together, Russia and Ukraine account for less than 2% of the world’s gross domestic product.
Most major economies have only limited trade exposure to Russia: for the US, it’s 0.5% of total trade. For China, around 2.4%.
Barring a long war duration, which is not impossible, “the effects on the US, China and most of the emerging world should be limited,” said Adam Slater, chief economist at Oxford Economics, who sees only a drop. 0.2% in global GDP this year.
In any case, Moscow is a vital fuel supplier in the European Union, with a greater dependence on Germany – one of the strongest economies in the bloc – so the effects threaten to inflict damage around the world.
Europe depends on Russia for nearly 40% of its natural gas and 25% of its oil. It’s a significant chance of skyrocketing inflation, another post-pandemic economic setback.
With AP and Reuters
The war launched by Russian President Vladimir Putin against Ukraine and the fierce financial backlash it has unleashed is not only beginning to wreak havoc on Moscow’s economy but on the entire planet. While global finances were already under pressure before the attack, now the repercussions of the sanctions are shaking markets and having an effect on inflation, especially from the energy industry.
Russia’s war in Ukraine magnifies every financial threat the world has been dragging behind the pandemic lockdowns.
Angered by Putin’s aggression, the United States and other Western nations have targeted Moscow with harsh and unprecedented sanctions on a top-tier economy. They have kicked out the major Russian banks from the Swift international payment system, limited high-tech exports to Russia, and severely curtailed Russia’s use of its foreign exchange reserves.
Economic experts point out that at least for now and in general terms, the effects are relatively slight, but it will depend to a large extent on the prolongation of the conflict. With its heavy reliance on energy from Russia, Europe’s economy is now especially at risk.
Natural gas prices soared 20% after the large-scale attack began and are now about six times higher than they were in early 2021.
The gas price crisis is fueling higher inflation and rising utility bills. The result is that households have less money to spend and hopes of an increase in consumer spending have dimmed despite the fact that several countries begin to live with fewer restrictions due to the Covid-19 pandemic.
“The drag of higher prices and the negative effect of confidence may reduce real GDP growth in the eurozone from 4.3% to 3.7% by 2022,” said Holger Schmieding, chief economist at Berenberg bank.
Rising gasoline prices have caused what economists call “demand destruction” among industrial firms, such as fertilizer makers, that use a lot of gas and have now cut production.
On the other hand, farmers are paying more for the operation of machinery and the purchase of fertilizers. Germany’s economy, which sank 0.7% in the fourth quarter of 2021, would face a technical recession if it contracted again in the first three months of 2022.
In the aftermath of the pandemic downturn, companies were left struggling to find enough raw materials and components to produce goods to meet growing customer demand. Overwhelmed factories, ports and freight yards have meant shortages, shipping delays and higher prices. Now, disruptions in Russian and Ukrainian industries could further delay the return to normal conditions of economic flow.
Russia and Ukraine together supply 13% of the world’s titaniumwhich is used to make airplanes, and 30% palladiumused in the production of automobiles, cell phones and dental fillings, points out Mark Zandi, an economist at Moody’s Analytics.
Moscow is also a major producer of nickel, which is used to make steel and batteries for electric cars.
“It’s impossible for supply chains to catch up,” said Vanessa Miller, a partner at Foley & Lardner LLP, a supply chain organization.
The Eurozone will observe 6% inflation, the highest in two decades
With energy prices soaring due to the war, inflation will top 6% this March, analysts say, and even the full annual average will top 5%, more than double the 2% target set by the European Central Bank (ECB).
In February, inflation in the 19 countries that share the euro accelerated to 5.8% after 5.1% in January, the highest figure in the bloc’s two decades, beating expectations of 5.4% and also confounding the ECB’s projection of a fall, Eurostat data showed on March 2.
Last month, energy costs rose 32% and were already driving higher inflation. Unprocessed food prices also rose sharply, to 6.1%, making inflation especially painful for low-income families.
With price pressures having been building for months, the ECB was almost certain to accelerate its exit from ‘ultra-loose’ policy, but the conflict has upended those plans, leaving the political landscape uncertain.
“If price stability requires it, the Governing Council of the ECB must adjust the course of its monetary policy (…) We need to keep our eyes on the normalization of our monetary policy,” said the president of the Bundesbank, Joachim Nagel.
Still, political leaders have not entirely abandoned their calls for tighter policy, as price pressures are now widespread and not simply a function of a rise in oil prices.
While the war is likely to push prices above all forecasts this year, it will also be a negative for both growth and inflation in the long run.
High energy costs sap household purchasing power, squeeze corporate margins and weigh on investment. They are also likely to affect the price of other goods and services, particularly food costs, since natural gas is the biggest expense in fertilizer production.
“It is to be expected that the conflict over the macroeconomic channel and the channel of confidence and sentiment in the markets will end up having an impact from the point of view of higher inflation and lower economic growth,” said Luis de Guindos, Vice President of the ECB.
The most optimistic side about the effects of sanctions on Moscow
The Russian invasion of Ukraine will inevitably have a negative impact on European economic growth, but it will not plunge the bloc into full recession, economic analysts stress.
“I believe that we are not going to reach a recessionary situation. What we are going to have is higher inflation for longer and, secondly, lower economic growth,” De Guindos added.
“We’re actually in uncharted territory … We know there are consequences that we can’t predict,” said Clay Lowery, executive vice president of the Institute of International Finance, a trade group for global banks.
Experts remind that no matter how important they are as exporters of energy, precious metals, wheat and other basic products, the two together, Russia and Ukraine account for less than 2% of the world’s gross domestic product.
Most major economies have only limited trade exposure to Russia: for the US, it’s 0.5% of total trade. For China, around 2.4%.
Barring a long war duration, which is not impossible, “the effects on the US, China and most of the emerging world should be limited,” said Adam Slater, chief economist at Oxford Economics, who sees only a drop. 0.2% in global GDP this year.
In any case, Moscow is a vital fuel supplier in the European Union, with a greater dependence on Germany – one of the strongest economies in the bloc – so the effects threaten to inflict damage around the world.
Europe depends on Russia for nearly 40% of its natural gas and 25% of its oil. It’s a significant chance of skyrocketing inflation, another post-pandemic economic setback.
With AP and Reuters