Inflation in the Eurozone is already at 5.8% and many analysts conclude that it may reach 7% during 2022. With inflation in the US already above 8% and the US Federal Reserve having open a cycle of delayed interest rate hikes in an effort to control it, accuracy seems to have a secure future in the EU.
The economic downturns and the crisis caused by the war in Ukraine are leading to the gradual “cutting” of forecasts for economic growth. The always optimistic European Central Bank (ECB) estimates that growth in the Eurozone will slow down, but will not stop. Its new estimate is for growth of 3.7% in the Eurozone for 2022, with the previous forecast at 4.2%.
For its part, the IMF estimates that the crisis in Ukraine will remove one unit from the growth of the world economy.
Moody’s Scenarios for the Evolution of the War in Ukraine
Moody’s scenarios for the development of the war in Ukraine are interesting.
The international house gives 55% chances to a quick solution with a ceasefire and some kind of peace. In this case, he estimates that oil will move around $ 110 a barrel, gas will be more expensive at $ 35 per million BTU and there will be a short-term shift to the also extremely expensive LNG (Liquefied Natural Gas), in an effort to reduce energy dependence on Russian gas.
Moody’s baseline scenario is complemented by a positive scenario, with a 15% chance of success, with Putin changing his mind and paving the way for a broader understanding.
But there is also the bad scenario of a long-running conflict with Russian troops occupying Kyiv, imposing an occupation regime controlled by them and deploying resistance forces. Under this scenario, in which Moody’s gives a 30% chance of realization, the price of oil will reach $ 150 a barrel and gas will cost $ 50 per million BTU.
Trust Economics does not find the economic, political assessments of international rating agencies particularly credible, because they tend to assess facts and prospects based on their profitability.
But there is no doubt, whatever the scenario, that the international economy is facing a period of inflation and squeezing of disposable income. If we add the gradual increase of interest rates by the central banks, in order to control inflation, we reach a scenario of economic stagnation or recession with high inflation.
Obstacles lie ahead for the European Union
Whatever the course of military operations, the Ukrainian crisis will be with us for many years. The Russian troops did not achieve the goal of the thunderous war – by Hitler’s standards – but they are advancing their positions and it is obvious that Russia will “swallow” in one way or another a large part of the territories of Ukraine, especially those that secure exit to the Black Sea.
The Ukrainian government will either accept a humiliating compromise solution, resulting in self-abolition, or continue a heroic struggle which, however, can only bring a positive result for Ukraine in the long run.
Therefore, the Ukrainian crisis and the related economic and international political upheavals have a secure future.
However, Trust Economics believes that the international economy can also function, with a partial bypass of the Russian economy, quite effectively. The specific weight of the Russian economy in the world economy is not particularly significant, compared to that of Italy. With the exception of energy, where Russia has – under the responsibility of the Europeans – a dominant position in the European market, everything else is treated at no extra cost.
The Trust Economics therefore estimates that the Ukrainian crisis will be with us for a long time, with Putin investing in destabilization and chaos and the Ukrainians envisioning a change in the balance of power to the detriment of Russia.
After a period of several months, the situation in the international markets will normalize, while the national economies will assimilate in one way or another the inevitable significant burdens from the higher energy costs to the significant increase in defense expenditures.
