With the global economy still affected by inflation and supply chain disruptions, Russian invasion of Ukraine threatens to further destabilize fragile global recovery caused by COVID-19, raising concerns that economic growth could slow at a time when prices are rising.
The value of oil has skyrocketed, placing the barrel of Brent at $115.38 and the West Texas Intermediate (WTI) -of reference for Ecuador- to $113.72. A month ago, on February 4, a barrel of Brent was quoted at $93.27 and the WTI in $92.31.
Crude oil prices directly indicate the cost of gasoline, whose increase can generate inflation in the value of the basic basket.
In addition, US and European stock markets have not recovered from their decline since the start of the conflict, thus upending forecasts of an economic recovery this year as investors become increasingly convinced that the consequences of the conflict will slow down the economy. of these regions.
“Europe is probably already in recession”Luca Paolini, chief strategist at Pictet Asset Management, told Financial Times (FT). “Consumers aren’t going to go out and spend the savings they’ve built up when there’s a war on their doorstep, and that’s before you consider a big spike in inflation.”
“The risk of stagflation increases significantly, especially in the European Union. This translates into an added problem in the management of our portfolios, since this type of situation has not been lavished in recent years and doubts may arise regarding how to deal with them”, indicate the managers of Dunas Capital.
The president of the European Central Bank (ECB), Christine Lagarde, said that “the war in Russia and Ukraine will have a material impact on economic activity and inflation through higher energy and commodity prices.” In addition, that the war will create problems in international trade and weaken confidence.
The economic recovery of the euro countries is driven by the weakening impact of the omicron variant of the coronavirus. But the rise in the prices of energy and raw materials, which will be higher due to the war, will harm growth.
what is stagflation
An economy experiencing stagflation is one that is simultaneously experiencing stagnant activity and accelerating inflation.. According to CNBC, this phenomenon was first recognized in the 1970s, when an oil shock led to a prolonged period of higher prices but a sharp drop in GDP growth.
Inflation in the euro zone was 5.1% in January and rose to 5.8% in February as energy prices soared amid Russia’s severe military escalation. The development of inflation may worsen as gas prices reach all-time highs and Putin threatens to cut off gas supplies entirely in response to Western sanctions imposed on Moscow. (I)
Source: Eluniverso
Paul is a talented author and journalist with a passion for entertainment and general news. He currently works as a writer at the 247 News Agency, where he has established herself as a respected voice in the industry.
