ECB Economic Bulletin: Russia’s aggression in Ukraine is causing enormous suffering

Russia’s aggression in Ukraine is causing enormous suffering. It is also affecting the economy, in Europe and beyond. The conflict and the associated uncertainty are weighing heavily on the confidence of businesses and consumers. Trade disruptions are leading to new shortages of materials and inputs. Surging energy and commodity prices are reducing demand and holding back production. How the economy develops will crucially depend on how the conflict evolves, on the impact of current sanctions and on possible further measures. At the same time, economic activity is still being supported by the reopening of the economy after the crisis phase of the pandemic. Inflation has increased significantly and will remain high over the coming months, mainly because of the sharp rise in energy costs. Inflation pressures have intensified across many sectors.

Global economic activity remained resilient at the start of 2022, with survey data indicating that the Omicron variant of the coronavirus (COVID-19) may only have a short-lived impact on advanced economies.

Several factors point to slow growth also in the period ahead. The war is already weighing on the confidence of businesses and consumers, including through the uncertainty it brings.

Fiscal and monetary policy support remains critical, especially in this difficult geopolitical situation.

Market-based indicators suggest that energy prices will stay high in the near term but will then moderate to some extent. Food prices have also increased sharply.

Supply bottlenecks and the normalization of demand as the economy reopens also continue to put upward pressure on prices.