Russia’s invasion of Ukraine shocked the world and now ripple effects are being felt throughout the globe. Commodity prices are soaring, financial sanctions have been imposed, and talk of a ban on energy imports are all threatening an already weakened economy.
This does not constitute advice and advice should be sought in all instances before acting on it.
Before the invasion, inflation was already at levels not seen for decades with no sign of stopping and global markets were flagging. Now, economists are warning of the increased likelihood of stagflation — a phenomenon that occurs when the economy is stagnating (stalling or falling output) and inflation is high, simultaneously. This occurred back in the 1970s and experts say the situation is eerily similar. The solution back then was easy money policies which are designed to increase the supply of money by lowering interest rates.
This comes at a time when banks were considering raising their rates after keeping them low during the pandemic. But now, it’s more likely that with the new economic risks, that won’t happen.
Europe is now facing a potential third recession in two years as its proximity to the conflict and dependency on Russian energy raises the stakes. Currency exchange rates and stocks are falling, and even without a direct connection to Russia, bank stocks have been hit hard.
European economic recovery wasn’t as speedy as other parts of the world, namely the US, partly because of lower government and consumer spending, which are still not on pace with their statistics pre-pandemic. In other areas of the world, they’re facing food-security crises due to rising prices and lack of imports from Russia who had previously supplied essential items.
Russia itself may face an economic decline of as much as 10%, a contraction they haven’t experienced since the ‘90s.
The invasion of Ukraine might even reduce eurozone economic growth thanks to Western sanctions on Russian businesses. Companies are also voluntarily cutting ties with all things Russian, putting further strain on an already disrupted supply chain.
During this time, it’s important to keep an eye on your financial portfolio and stay in touch with your financial adviser to reduce the potential impact on your personal situation.