HOW IS THE WAR IN UKRAINE IMPACTING GROWTH?

07.04.2022 The war in Ukraine represents a dramatic increase in geo-political risk for the global economy. Below we look at how surveys suggest it is impacting on growth.

Surveys of both the manufacturing and service sectors are carried out each month. They aggregate questions on issues such as new order inflow, employment intentions and output to give an overall indication as to whether the sector is expanding or contracting.

In Europe (including the UK) manufacturing, whilst still growing, slowed in March. Supply shortages and the war in Ukraine were mentioned as factors hampering business. Services, in contrast, continued to grow strongly with the removal of pandemic restrictions offsetting concerns about the Ukrainian conflict. In the US, the economy continued to expand rapidly with both the manufacturing and service sector surveys edging higher.

Overall it seems that, so far, the war in Ukraine has had a relatively modest impact on growth in advanced economies. This is in stark contrast to, for example, 9/11 which saw economies grind to a halt as corporate hiring and investment decisions were put on hold.

The market implications of this are that monetary policy (via higher interest rates and quantitative tightening) will have to bear the burden of bringing inflation down.  As such the longer growth remains strong the higher interest rates will have to rise in order to stop advanced economies overheating.

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This post was written by Robin