War in Europe

Russia’s military invasion of Ukraine has caused turmoil in financial markets across the region. Western nations have imposed sanctions on Russia, including targeting some of its largest banks and their access to the international financial system. Sanctions so far fall short of the ‘nuclear’ option of hitting Russia’s energy sector but the imposition of these will likely depend on the scale of the conflict. Russia’s economy is in a strong position to weather the effect of sanctions but growth is likely to weaken from here, exacerbated by the significant tightening in financial conditions this week. And the rest of the region is likely to be hit via trade ties and higher energy prices, which will keep inflation high for a prolonged period of time.