Russia’s invasion of Ukraine throws sand in the wheels of the global economy.

The global economy remains challenged by supply chain issues and high energy prices. On top of this, the Russia-Ukraine conflict is further pushing up commodity prices, fuelling even higher inflation. Our GDP growth forecasts have been revised downward. High inflation is likely to push central banks to implement more aggressive monetary tightening. We already see this in the United States and United Kingdom, with the eurozone moving more slowly. Many emerging markets have already turned this corner in 2021.

Key points

  • The Russia-Ukraine conflict is having a negative impact on global growth mainly through its impact on commodity and energy prices. We have downwardly revised growth by 0.7 percentage points (ppt) in 2022 and by 0.4 ppt in 2023. Despite the downward revision, global growth remains relatively robust at 3.4% in 2022 and 3.2% in 2023. This growth forecast is subject to a high level of uncertainty.
  • Prices of a broad range of commodities are forecast to increase significantly in 2022. Already overheated oil and gas markets are showing renewed volatility after the outbreak of the Russia-Ukraine war. We also expect prices of other commodities of which Russia and Ukraine are major producers, such as wheat, barley, vegetable oils and base metals, to rise significantly.
  • Supply chain bottlenecks show some signs of easing, though shipping costs and equipment shortages remain elevated. Furthermore, the Russia-Ukraine conflict is distorting some specific supply chains, like that of semiconductors and the automotive industry. Trade growth remains relatively robust in 2022, however, as supply chain pressures and inflation are counterbalanced by strong consumer demand.
  • Global inflation is expected to rise in 2022. Even at the start of 2022, there were already inflationary pressures from supply chain issues, strong consumer demand, and rising energy and commodities prices. The Russia-Ukraine conflict is only making matters worse, given its effect on commodities prices. This means central banks will have to move more aggressively to quell inflation.
  • Growth in advanced markets is slowing as a result of high inflation, supply chain pressures and indirect effects of the Russia-Ukraine conflict. Growth in the eurozone is expected to cool significantly in 2022. Price pressures were already rising in past months, but the conflict has exacerbated this trend. Inflation is building up rapidly. The consumer-led recoveries in the US and UK are facing increasing challenges as accelerating inflation drives a more rapid turnaround in monetary support. Both the Federal Reserve and the Bank of England have already hiked the policy rate in the past couple of months and the outlook for the Fed is increasingly hawkish.
  • Growth momentum for emerging market economies is weakening as fiscal and monetary support are being rapidly withdrawn. New headwinds are created by Russia’s invasion of Ukraine. This comes on top of other issues, such as supply chain bottlenecks and in some regions new waves of Covid infections.

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