The tragic developments in Ukraine are dominating the attention of the world and markets. Russia formally invaded Ukraine on Thursday, with President Putin ordering a ‘special military operation’ in the country. Missile strikes have been carried out across the country. It is not clear how far Russia will go. Some have raised the concern that Russia’s invasion could result in a broader conflict.
This conflict comes at a time when major central banks around the world, including our own Reserve Bank, are grappling with mounting inflationary pressures while their respective economies recover from the pandemic. This conflict adds to the challenges of an already difficult inflation backdrop. It raises the risk of higher inflation, especially via higher energy prices. It also poses downside risks to consumer sentiment and world economic growth; the extent of downside risk to world growth depends on how this conflict evolves. In particular, if it draws the world into a wider conflict, there would be more severe economic ramifications. It means stagflation risks have grown, which is the scenario of low growth and high inflation.
What does it mean for the Australian economy specifically?
Download – 28 February 2022 Weekly economic outlook
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