The Macroeconomic Impact of the Russian Invasion

The Russian invasion has happened in a very chaotic and rather abrupt manner, and the series of events that are unfolding before us right now could inevitably impact certain global economic dynamics that are already under growing pressures:

• Inflation is spreading around the world. United States CPI reached 7.5% on January 2022, while in Eurozone touched 5.1%. The phenomenon is affecting countries around the globe with different strengths: Turkey, for example, with the help of the very controversial local monetary policies, showed a 48.69% increase YOY in CPI, while China demonstrates a very important long term strength with just a 0.9% increase.
• Supply chain is still recovering from the post covid damage. Global freight rates increased by 128% YOY in February.
• Energy Inflation is on its way to become a non-transitory issue. WTI increased 37.18% year to date and 11.61% during the week after the Russian invasion.

Globally, the Covid crisis impacted each country in a different way.

The United States saw their GDP drop as much as 9% yoy in June 2020, which is 5.10% more than the Global Financial Crisis in 2008.

Regarding the fact that this crisis is happening in the Eurozone and it’s impacting primarily this part of the world, it is important to remember that:

• Europe hasn’t still recovered from the Covid crisis.
• Russia is Europe’s main supplier of natural gas, with a percentage of 46.8% of total imports (based on the first semester of 2021 data). It’s a must to point out that energy was the main driver of the late 2021 inflation, registering a 28.8% yoy increase in January 2022.

Conclusion:

This conflict will more than likely lead to a worsening of the inflation dilemma in the Eurozone, and will eventually influence the monetary policies that were slowly directing towards a Quantitative Tightening.

We expect more caution by the ECB in March and a decrease of general GDP growth expectations.