Pantheon Economics with the note.
We can’t read the warped mind of Vladimir Putin, so we have no hard view on the final outcome of Russia’s invasion of Ukraine, though it’s always good to remember the old—Prussian—adage that no military plan survives its first encounter with the enemy. Some of the economic consequences, however, are clear, both short and long term. Financial conditions in Europe and the U.S. have tightened significantly in recent weeks, with Bloomberg’s U.S. index at levels last seen in November 2020, even before the stock market opens today. A further tightening is likely, and consumer sentiment everywhere will weaken further. That has to mean slower economic growth than would otherwise have been expected in Europe, the U.S., and most emerging markets, at the margin. For eastern Europe, the hit will be bigger, but oil and some metal-producers will do much better.
The impact of the further leg up in energy prices, however, will be very different. WTI at $100 or even $120 would not be an existential threat to the U.S. post-Covid economic recovery. It’s not even clear that it would depress economic growth at all. Consumption would be hit, especially among lower income households, whose Covid savings now appear to be dwindling, but middle- and upper-income households have huge cash resources from pandemic-induced savings.
