The UK's National Institute of Economic and Social Research (NIESR) said the conflict between Russia and Ukraine could trigger another supply chain crisis and cause the global economy to shrink by $1,000bn in 2022 and global inflation by 3 per cent.
According to the agency's researchers, supply problems will slow economic growth and push up prices, and global GDP levels will fall by about 1 percentage point by 2023. Since the parties to the conflict are the main sources of commodities and energy in Europe, Europe is more vulnerable than other regions.
The conflict will also force European governments to borrow more to cope with the influx of migrants and strengthen their armed forces, NIESR added. It urged central banks to "slowly raise interest rates when assessing the impact of conflicts on market confidence and economic activity, as well as the squeeze of rising energy costs on real incomes".
Jagjit Chadha, head of the NIESR, said: "the conflict between Russia and Ukraine has put further pressure on the economy that has already been hit by the epidemic. The supply chain will be further disrupted and monetary and fiscal policies will be severely tested. "
The NIESR pointed out that the economic blow caused by the sanctions against Russia would be "partially offset by higher prices for natural gas and oil exports", but that by the end of 2023, Russia's GDP would be 2.6 per cent lower than previously forecast, while the collapse of the rouble would lead to inflation as high as 20 per cent.
NIESR said Russia's GDP had been hit only slightly worse than in the eurozone and the UK, where GDP levels would be about 1.5 per cent lower than previously forecast by 2023. While economic growth slows, the cost of living will rise further. The average inflation rate in the UK will reach 7 per cent this year and could fall to 4 per cent by 2023, the agency said.
If sanctions against Russia are further escalated and Russia's natural gas and oil shipments are cut off, the blow to Russia will be "very serious." But since 40 per cent of the EU's natural gas comes from Russia, escalating sanctions against Russia will also increase the "possibility of a recession accompanied by a sharp rise in inflation" within the eurozone.
Edit / phoebe