Russia-Ukraine: The Economic and Market Consequences

We’re tracking the near- to long-term consequences of the war in Ukraine across our macro and market services. Below is key analysis from our coverage.  Jump to a section:

Russia
Global Economy
Global Markets
Commodities

Europe
China

Emerging Europe
Other Economies/Markets

 

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Russia

EU oil embargo to hit Russia’s oil exports hard (4 May)
Exports could fall 20% this year if an embargo is approved but there won’t be immediate pain for the Russian economy.

Recession risks take centre stage (22 April)
Q2 regional outlook explains how Russia’s collapse and the fallout from the Ukraine war will hammer growth.

Russia Consumer Prices (Mar.) (8 April)
March CPI showed headline inflation rising nearly 17% y/y but slowing sequential price growth points to more rate cuts.

Early evidence of a hard hit to Russia’s economy (7 April)
The March PMI and a weekly spending tracker are consistent with a 20% y/y fall in manufacturing and 10% drop in consumer spending. Worse is to come.

CBR trying to stick to orthodoxy (18 March)
After its first scheduled meeting since sanctions were imposed, a speech by governor Elvira Nabiullina suggests the Russian central bank wants to hold the line on its inflation goals.

Russian banks: immediate crisis averted, but risks loom (16 March)
The banking system avoided a near-term meltdown but still faces a future of impairments which will sap economic growth.

The implications of Russia’s impending default (11 March)
What Russia’s first default since the Bolshevik revolution will for its access to financing, for contagion risk and for its corporate borrowers.

The costs of Russia’s shift towards isolation (10 March)
Isolation means Russia won’t be able to catch up with advanced economies, while the West will also face some difficult choices.

A deep dive into Russian corporate debt risks (9 March)
With a wave of defaults looking ever more likely, here’s all you need to know about what’s at stake, who’s exposed and the potential macro fallout.

Russia plunges into economic & financial turmoil (4 March)
Where next for emerging Europe after a tumultuous week.

How big is the Russia default risk? (2 March)
Don’t rule out defaults on foreign debt as retaliation but watch corporates borrowings too.

Russia macro update: sharp contraction incoming (1 March)
Russia’s economy now faces a 5% contraction and double-digit inflation as it staggers from the punitive response to the invasion of Ukraine.

How vulnerable are Russia’s FX reserves to sanctions? (28 February)
With most reserves frozen, capital controls will remain the order of the day for now. However, the authorities may need to let the ruble fall further.

Russia and SWIFT: key questions answered (28 February)
Everything you need to know about the exclusion of Russian banks from the global payments messaging system.

Russia/Ukraine and the risks to commercial property (28 February)
If 2014’s Crimea invasion is anything to go by, Moscow office capital values could fall by up to 30% this year.

Russia’s banks on the brink (28 February)
On top of already-high NPLs and low capital ratios, Russia’s banks now face tough new sanctions.  They’ll need state help.

Russia and the sanctions threat (14 February 2019)
Deep-dive from 2019 into the economic and markets impact on Russia of tighter sanctions.


Global Economy

Early signs of trade fallout from the war (29 March)
With traditional trade data badly lagged, we’ve developed three new indicators to help with timely tracking of  the impact of the war on trade flows.

The long-run effect of the Ukrainian refugee crisis (29 March)
Migrants fleeing the war will boost the workforces in the countries where they settle, offsetting unfavourable demographic forces.

The dollar won’t be toppled (23 March)
Despite much breathless speculation, there are practical reasons why the war in Ukraine doesn’t mark the end of the dollar standard.

World GDP forecast revised down due to Ukraine war (16 March)
Our expectation that Russia’s economy will contract sharply this year is a big reason why we’ve cut our 2022 global growth forecast.

Central banks likely to push ahead with monetary tightening (10 March)
Despite a worsened policy dilemma posed by surging commodity prices, we still think DM central bank plans to raise rates will stay on track.

Financial contagion and known unknowns (9 March)
The rest of the world’s direct financial exposure to Russia has fallen in recent years. This limits the risk of financial contagion from the collapse in Russia’s economy that is underway.

The consequences of an end to Russian energy trade (7 March)
How a complete ban on Russian energy would drive up oil and gas prices, push inflation higher and drag on global growth.

The economic consequences of the war (2 March)
With Russia’s economy poised to tumble down the rankings, this note from our long-term service discusses some of the war’s potential lasting effects on the global economy.

Russia-Ukraine war risks renewed trade disruptions (1 March)
Monthly Global Trade Monitor explains why the war’s effect may be small in aggregate – but also its potential to become a major impact.

Global economy to weather conflict, but risks around supply (28 February)
Our latest assessment of risks to the global economy following the weekend’s escalation.

Russia/Ukraine: a weekend catch-up(28 February)
Key macro and market takeaways from an extraordinary 48 hours in the crisis.

Video: Russia-Ukraine – Assessing global macro and markets risk (14 February)
On-demand recording of a briefing by our senior economists on the risks associated with escalation [registration required].

Russia/Ukraine: near-term inflation; long-term decoupling (4 February 2022)
How invasion or stiff sanctions could add 2%-pts to DM inflation. Further out, this crisis will accelerate decoupling of Russia and the West.


Global Markets

US corporate earnings may be resilient to Ukraine war (28 March)
Earnings may come under some pressure in the coming months but not by enough to stop the S&P 500 from making small gains in the next couple of years.

How the war in Ukraine has changed our thinking (25 March)
The war, as well as the hawkish tone adopted by some developed market central banks, have led us to revise up our end-22 and end-23 forecasts for government bond yields in some DMs and to lower our projections for DM equities generally.

Revising our market forecasts in light of the war (18 March)
We’ve revised up our 2022/23 forecasts for US Treasury yields and think DM equities will be a bit lower than previously expected.

Lower valuations may help European equities outperform (17 March)
European equities have been looking even more undervalued since the war started. That supports our view that they’ll outperform their US equivalents this decade.

Three ways the war has changed the markets outlook (16 March)
Although some of the effects of the war have started to unwind, its impact will continue to be felt in financial markets.

Oil embargoes and asset returns: lessons from 1973-74 (11 March)
In the event of further escalation of the war, we would expect some of the recent patterns in relative asset market performance to continue to echo those during the 1973-74 oil crisis.

Assessing the risks to the S&P 500 from high oil prices (11 March)
This isn’t 1973: the surge in energy prices stemming from the war won’t crash the S&P 500.

War, sanctions, and the resilience of the S&P 500 (9 March)
We think equities can eke out small gains over the rest of this year, though there are clear downside risks.

Oil-supply disruptions pose a threat to the US stock market (7 March)
A look back at the 1970s to show why oil shocks aren’t good for share prices.

Lessons from past conflicts and crises (4 March)
A trawl through recent history suggests to us that equities could face more pressure and government bond yields could still rise.

How the war in Ukraine is challenging our views (4 March)
Update on our assumptions about commodities prices, equities vs bonds relative performance and sectoral and geographic equities performance.

How the Russia-Ukraine war is shaking up the markets outlook (25 February)
The relative performance of stocks, bonds and currencies in the shadow of war.

Taking stock of Russia/Ukraine tensions & market implications (18 February)
Assessing the impact of the crisis on financial markets so far, and what lies ahead.


Commodities

Russia weaponisation of natural gas poses economic risks (27 April)
The macro and market fallout from Russia’s move to suspend gas deliveries to Poland and Bulgaria.

High volatility to persist while war rages on (31 March)
Prices are as volatile as they’ve ever been. Only when the war ends will the true extent of the supply shock be known.

Lessons from the 1970s for commodity markets (29 March)
Higher prices from the war are likely to mean some near-term demand destruction but longer term supply-demand dynamics will be affected by fundamental energy policy shifts.

Central and extreme scenarios for coal and natural gas (25 March)
Under our extreme scenario of the West completely banning Russian energy exports and/or Russia unilaterally halting its energy exports, there would be limited supply elsewhere to compensate.

The war in Ukraine and Saudi oil policy (11 March)
Why it’s looking likely that the Kingdom will raise production to increase market share.

Can Russia evade sanctions on its crude exports? (11 March)
The Iranian experience suggests that there will still be ways for Russia to get its oil onto global markets. But at best this would amount to a tiny fraction of pre-sanction volumes.

An extreme scenario for oil prices (10 March)
A look at how prices would behave in the event of a complete Western ban on Russian energy imports. See our Oil Market Monitor for interactive charts.

Prices could rise further (4 March)
Upside risks to commodities prices are around more sanctions on Russian exports and the attitudes of OPEC+

Sanctions are the catalyst for palladium price gains (4 March)
We’ve raised our forecasts on Russian supply constraints and improved demand.

Three ways that Russia-Ukraine could impact gold (1 March)
Safe haven demand will continue to drive gold prices in the near-term but Russia’s central bank could sell some of its holdings to raise FX.

Sanctions on Russia to keep nickel price elevated (28 February)
We’ve raised our price forecasts because of likely disruptions to Russian supply, rather than the (frankly subdued) demand outlook.

How large are risk premiums in commodity prices? (25 February)
Our estimates suggests prices could fall a long way back if the conflict eases.

The latest Russia-Ukraine escalation and our forecasts (24 February)
From oil to gas to coal to gold to wheat – here’s how the crisis could be felt across commodities markets.

Assessing the upside risk to oil prices (22 February)
Disrupted oil flows could see prices settling at $120-140 per barrel.


Europe

Gas crisis heightens German recession risk (28 June)
A recession is already likely this year. If Russia cuts the gas off, it’s a near certainty.

EU oil embargo to hit Russia’s oil exports hard (4 May)
Europe would be able to replace lost Russian oil, though there could be some near-term disruption.

The fallout from Europe’s energy war (30 March)
In-depth guide to how the overhaul of Europe’s energy strategy will affect economies and markets.

The fiscal cost of the Ukraine war (29 March)
In-depth analysis of the various channels through which spending will be affected by the war, and how it will be funded.

Euro-zone Consumer Confidence (Mar.) (23 March)
The slump in confidence points to falling consumption as the war and higher energy costs take their toll.

Counting the cost of going cold turkey with Russian oil (23 March)
The direct economic impact on the euro-zone of a total Russian oil embargo would be smaller than many expect.

War could cause euro-zone manufacturing recession (22 March)
Manufacturing’s recovery has been blow off course from the war but services demand should keep recession at bay.

Cyprus unlikely to be source of financial instability (17 March)
The country has very close economic ties with Russia, but it’s finances and banks are also in better shape to withstand fallout from the war.

Ukraine war will push up euro-zone food inflation (16 March)
High food inflation was a challenge for the ECB even before the war started.

First signs of Ukraine war’s impact on euro-zone firms (15 March)
The earliest business survey results are consistent with our view that the euro-zone faces a big hit to activity, if not (yet) outright recession.

Russian economic crisis will hit Cyprus hard (11 March)
It’s by far the most exposed euro-zone economy to the collapse in Russia’s economy and now looks very likely to fall into recession in the coming quarters.

EU’s pivot away from Russian gas will come at a price (9 March)
European household incomes face a greater squeeze when Europe’s plan to cut Russian gas imports goes into effect.

A deep dive into supply-chain links with Russia (3 March)
Although just 6% of euro-zone imports of intermediate goods come from Russia, shortages of seemingly obscure inputs could cause significant disruption.

Ukraine war to keep fiscal stance loose for longer (3 March)
Higher energy prices and more defence spending point to shifting attitudes towards fiscal policy within the EU.

How could Europe cope without Russian energy? (1 March)
Although Russia makes up around 10% of Europe’s primary energy use, the economy has options for going without.


China

What will China do with its FX reserves? (1 April)
Sanctions on Russia may spook China into diversifying more of its $5tn in FX reserves, but there’s only so much it can do if it still wants a managed exchange rate.

China stands to lose not gain from war in Ukraine (2 March)
A modest improvement in Sino-Russian trade will be offset by the impact of higher imported inflation and weaker net trade.

China can’t shield Russia from sanctions (2 March)
Financial sanctions mean there are now significant practical constraints on China’s ability to transact with Russia.

China won’t hurt itself to help Russia (24 February)
Despite the challenge, Beijing is likely to tow the line on western-imposed sanctions.

China-Taiwan ≠ Russia-Ukraine (15 February)
Despite the speculation, here’s why a Russian invasion of Ukraine wouldn’t point to an imminent move by China on Taiwan.


Emerging Europe

The impact of Ukrainian refugees on CEE so far
Ukrainian refugees have boosted labour forces and consumer spending across Central and Eastern Europe (CEE) since the outbreak of the war, but this could prove short-lived.

War in Ukraine to exacerbate macro imbalances in CEE (19 May)
Wage-price spirals and current account deficits will be tackled with tighter monetary policy, but higher rates are one reason we’re below consensus on Central and Eastern European growth this year.

Recession risks take centre stage (22 April)
Q2 regional outlook explains how Russia’s collapse and the fallout from the Ukraine war will hammer growth.

Russia/Ukraine spillovers to hit CEE economies hard (29 March)
The reasons why we’re generally below consensus on the region’s economies this year.

The economic impact of Ukrainian refugees on CEE (23 March)
Around three million Ukrainians could settle in Central and Eastern Europe by mid-year, meaning near-term fiscal costs but longer-term boosts to growth.

Contagion risks to CEE banks likely to be limited (21 February)
Survey of regional bank linkages has encouraging news in terms of potential contagion.

Russia-Ukraine and the impact on the rest of the region (16 February)
Economic vulnerabilities in the event of war include a reliance on Russian energy, though Ukrainian refugees could ease some demographic constraints.

A closer look at Ukraine’s macro vulnerabilities (16 February)
Around 65% of Ukrainian government debt is FX-denominated, making it a key source of risk if the crisis escalates and the hryvnia falls sharply.


Other Economies/Markets

Emerging European Property: War reinforces weak values outlook (30 March)
Office and retail rents in the Central and Eastern Europe can return to growth this year, but the recovery is likely to be slower than previously expected.

Regional divergence to widen on back of Ukraine war (23 March)
We’ve raised our GDP growth forecasts for Gulf countries on the back of higher oil prices. For the rest of the Middle East and North Africa, the war will have a negative impact on growth.

UK Commercial Property: Ukraine raises risk of sharper slowdown (11 March)
As the conflict extends into a third week, concerns have risen about the macroeconomic impacts of the invasion and the potential spill-overs for commercial property.

Higher oil prices not a huge risk to US consumers (9 March)
Oil prices would have to rise much further to threaten the US consumer recovery.

War in Ukraine raises EM inflation risks (3 March)
Rising commodities will add to price pressures across most EMs, but some central banks will be more aggressive in tightening than others.

Egypt, the war in Ukraine and wheat (3 March)
Nearly 90% of Egypt’s wheat comes from Russia and Ukraine. The war means higher inflation and the potential for more social unrest.

Assessing the impact of the war in Ukraine for Canada (2 March)
Canadian growth faces a near-term drag of higher inflation but could benefit from increased immigration and the increase in commodities prices.

US economy insulated from Ukraine war (1 March)
Why we doubt the war will stop the Fed from tightening policy.

The war in Ukraine and the impact on EMs (1 March)
From Thailand to Turkey and inflation to contagion, here’s how EMs will be affected.

Russia/Ukraine: Some scenarios for the UK economy (28 February)
How the crisis could impact growth and inflation – and how the Bank of England could respond.

The impact of the invasion of Ukraine on UK property (25 February)
Despite the talk about Russian money in UK property, demand is too small to have any bearing on the outlook.

Russia/Ukraine generates more upside risk to inflation (24 February)
UK CPI could rise even further above target but will escalation give the Bank of England pause for thought?

 

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