
Key Takeaways
As the Russia-Ukraine conflict unfolds, we’re keeping an eye on three key areas of concern.
- Energy security (notably natural gas)
- The inflation outlook
- Pressure on earnings growth
March 4, 2022
Our Non-U.S. Growth portfolio team weighs in on how the Russia-Ukraine conflict may affect energy security, inflation and earnings.
Key Takeaways
As the Russia-Ukraine conflict unfolds, we’re keeping an eye on three key areas of concern.
Russia’s invasion of Ukraine remains an extremely fluid situation. We’ve seen surprising changes in just six days.
Ukraine’s ability to defend the capital and the swiftness with which governments have reacted with sanctions have seemed to solidify global support for Ukraine against Russian aggression. The move to disallow Russian access to SWIFT1, expected by some as a follow-up to initial sanctions, was quickly implemented. The agreement by both governments to talk along the Belarus border adds to the uncertainty. It is unclear if talks will lead to a ceasefire, a Russian military pullback, or some other form of compromise.
We are focused on three key variables where markets and fundamentals are concerned: energy security, the inflation outlook, and pressure on earnings growth.
The potential disruption of the flow of gas from Russia to Europe has important implications.
How the conflict will be resolved remains unclear, clouding the outlook for inflation, growth, and central bank policy.
According to consensus estimates, every 10% increase in natural gas prices or $10 increase in oil prices reduces European GDP by approximately 0.10%.
(Source: Goldman Sachs)
A material drag on growth from higher inflation and/or weakening of business and consumer confidence could have negative implications for earnings-per-share (EPS) growth.
The key area to watch is the spike in energy prices. With global supply already tight, further sanctions could have significant consequences for global growth and inflation.
1 The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a widely-used digital network for international financial transactions.
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