Research Briefing

Eurozone markets are at the mercy of war

Eurozone | Markets are at the mercy of warThe war between Russia and Ukraine continues to dominate headlines and financial markets. The daily news flow coming out of the region is causing large swings in energy prices and European equity markets, as investors move back and forth from optimism to pessimism regarding a potential resolution of the conflict.

What you will learn:

  • Predictably, investor confidence is sinking but the length of the war will be crucial in order to gauge its impact on the economy, and we could witness a sharp rebound on news of a ceasefire or an agreement between the two countries.
  • For now, the main impact channel for the eurozone economy continues to be via higher prices and the impact on household real incomes.
  • Inflation has risen to a record high of 5.9% and will probably rise further over the coming months.
  • We still expect the eventual end of the conflict to bring about a sharp disinflationary impact from lower energy prices.

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