Mar 7, 2022 - World
Axios Explains: Ukraine

What Russia's war in Ukraine means for global economic growth

Data: FactSet; Chart: Axios Visuals

Economic forecasters are starting to plug the effects of the Ukraine war into their models. It doesn't look good, especially for Europe.

Why it matters: Much of the world is set to experience weaker growth and higher inflation than seemed likely mere weeks ago. And that's assuming some of the more dire possibilities that further escalation of the conflict could bring don't materialize.

The big picture: Soaring energy prices are the most direct channel through which the world economy stands to be battered by the conflict. But rising prices for other commodities will also fuel inflation and could disrupt supply lines.

  • These forecasts were made last week before a new surge in oil futures overnight Sunday into Monday that will only intensify these pressures.
  • Moreover, geopolitical risk has tightened financial conditions, which could constrain investment — though that effect is modest so far.

By the numbers: Economists at JPMorgan said Friday they expect the world economy to grow 0.8 percentage points slower in 2022 than they did on Feb. 18.

  • They marked down their U.S. growth forecast only slightly, by 0.1 percentage point, while knocking the eurozone growth projection down a whopping 2.1 percentage points.
  • The JPMorgan team envisioned a more substantial effect on inflation in the U.S., with the crisis pushing their forecast for the Consumer Price Index in the fourth quarter up by a full percentage point.

At Goldman Sachs, economists see the rise in oil prices so far as likely to subtract 0.2 percentage points from U.S. growth in 2022, with the rise in food commodity prices subtracting another 0.1 percentage point. That would worsen if prices continue soaring upward.

The bottom line: Conditions remain highly uncertain, and further escalation would expand the economic risk. But already Ukraine looks like a meaningful headwind for the world economy in 2022.

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