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Russia-Ukraine conflict: Macro update

03 March 2022
  • The West is ready to impose far-reaching sanctions on Russia
  • Energy exports from Russia are exempt from sanctions thus far
  • European economy has greater exposure to conflict than other developed markets
  • Further deterioration in market sentiment due to energy shortages not in baseline scenario
  • European economy shows strong momentum; absorbs first shock 

Far-reaching sanctions against Russia

Heavy economic sanctions have been imposed on Russia, with the aim of restricting access to international capital markets for Russians, restricting the export of technologically strategic goods and damaging the Russian economy. In addition to restrictions on state-owned enterprises, certain sectors and Russian banks, the main sanctions are the banning of seven Russian banks from the international payment system SWIFT and the freezing of the Russian Central Bank’s foreign exchange reserves stored in the West (approx. 60-70% of the total).

The SWIFT ban means that a number of Russian banks will be unable to make international payments, making it difficult for Russian companies to import or export goods. The SWIFT ban is effective from 12 March. 

European gas reserves (in TWh) are low
If Russia decides to take countermeasures by reducing Europe's energy supply, this will lead to much higher inflation (estimated impact of around 2%), lower production from energy-intensive industries in Europe, lower consumer confidence and tighter financial conditions. In such a scenario, the economic damage to the eurozone is estimated at 2% to 3% of real GDP.   

Cautious flight to safety
The further escalation of the conflict and tightening sanctions against Russia have understandably had an impact on world’s financial markets. Since President Biden's (USA) speech on 11 February, when he pointed out that a Russian invasion of Ukraine was likely, the European stock market has fallen dramatically (-5.2% MSCI Europe Index in EUR). Developed markets as a whole fared better (-0.4% MSCI World Index in EUR), as the USA and the Pacific region are less dependent on imports, including energy, from Russia.

Read our full macro update on the Ukraine – Russia crisis

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