Research Briefing
| Apr 25, 2022
Broad-based cost pressures needn’t spiral higher
An array of data show that US and eurozone firms are currently experiencing particularly broad input cost shocks. Exceptional rises in the cost of inputs, such as intermediate goods prices, aren’t being offset by other costs falling or rising at a weaker-than-normal pace.
Research Briefing
| Apr 25, 2022
Broad-based cost pressures needn’t spiral higher
An array of data show that US and eurozone firms are currently experiencing particularly broad input cost shocks. Exceptional rises in the cost of inputs, such as intermediate goods prices, aren’t being offset by other costs falling or rising at a weaker-than-normal pace.
Russia’s GDP is unlikely to return to pre-crisis levels until the early 2030s, according to our modelling. We expect Russia’s economy to contract by almost 11% in 2022 and a further 3.3% in 2023, assuming that the war on Ukraine does not continue beyond 2023. Our forecasts also assume that the EU reduces imports of Russian gas this year but does not embargo Russian oil imports.
Eurozone consumer spending was poised to drive growth in 2022, but increasingly consumers’ underpinnings have become shaky. While we still expect a solid rebound in Q2 as the economy emerges from the Omicron wave, headwinds are mounting for the rest of the year. In particular, soaring energy prices, a consequence of Russia’s invasion of Ukraine, are squeezing real incomes and eroding the purchasing power of savings.
We have lowered Sweden’s growth for this year to 3.1% from 3.6% previously due to the fallout from Russia’s invasion of Ukraine. The main channel will be from higher inflation, weighing on disposable incomes and private consumption. Input shortages, which had been easing until the invasion, are likely to worsen again, although Swedish trade with Russia and Ukraine had been minimal.
US supply chain stress tracker brought bad news in February. Inflation took up the baton from transportation and now represents the most stressed aspect of supply chains as input costs rose and firms exercised pricing power. Good news from the transportation front, however, was diminished by greater activity and labour pressures, while inventory tensions subsided slightly.
Following Russia’s invasion of Ukraine, the US and EU announced harsh new sanctions, including banning some Russian banks from SWIFT and freezing the assets of Russia’s central bank.
Turkey will take a hit from the Russian invasion of Ukraine through three main channels – tourism, energy prices and financial market disruption – all of which will put further stress on price and financial stability. Altogether, we estimate the impact may shave 0.4ppts from our 2022 growth forecast of 2.5% for Turkey.
We have raised our full year 2022 GDP growth forecast to 3.6% from 3.3% previously, due to the especially strong flash estimate for Q4 2021. The Omicron wave has probably peaked and has been mild overall, with restrictions largely abolished. However, we expect inflation to stay higher for longer, denting real incomes and presenting a downside risk for our consumption outlook.