The US economy will slow down, Europe risks a recession, and Russia will suffer from a double-digit recession

An employee of a Lukoil gas station refuels a customer’s car on March 4, 2022 in the Canarsie area of ​​Brooklyn, New York.

Michael M. Santiago | Getty Images

As a first step in assessing the economic impact of an invasion of Ukraine, forecasters say the US will grow more slowly with higher inflation, Europe’s economy will teeter on the brink of recession, and Russia will plunge into a deep, double-digit recession.

CNBC’s quick update, the average of 14 US economy forecasts, shows GDP to grow 3.2% this year, a modest 0.3% write-down from the February forecast, but still above-trend growth as the US continues to recover from Omicron. slow down. Personal consumption spending inflation, the Fed’s preferred metric, is set to rise 4.3% this year, up 0.7 percentage points from the previous survey in February.

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Forecasters warn, however, that much remains unknown about how the US economy will react to the oil shock, with oil prices rapidly rising above $126 a barrel and the national average gasoline price topping $4 a gallon. Most see risks to their forecasts towards higher inflation and lower growth.

The complete exclusion of Russian oil from world supplies could spell a much bleaker outcome, economists say.

“…The consequences of a complete cessation of Russian oil exports to the US and Europe in the amount of 4.3 (million barrels per day) will be dramatic,” JPMorgan wrote over the weekend. the size and duration of the disruption – and thus the shock to global growth – will escalate.”

A quick CNBC update shows US growth accelerated to 3.5% in the second quarter from 1.9% in the first. But this second-quarter estimate is down 0.8 percentage points from the previous survey. So the economy is still recovering from the micron wave, but not as much as inflation.

Inflation estimates are 1.7 percentage points higher this quarter and 1.6 percentage points next. Inflation is expected to fall from 4.3% this year to 2.4% by the end of the year.

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Overall, US economic growth is considered robust.

“Energy prices are rising and they could stay higher sustainably, but I expect much of the growth seen in recent days to subside within a few months, which means a mostly short-term impact on growth and inflation,” said economist Steven. Stanley with Amherst Pierpont. “Consumers have tremendous liquidity, income growth and wealth to look forward to.”

One factor that distinguishes this price shock from others is the volume of US oil production. With an approximate balance of production and demand in the US, money moves from consumers to producers within the economy, and not from the US to foreigners. This will hit individual American families and certain regions of the country harder, but will increase the profits of American energy companies.

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Oil companies, in turn, are likely to accelerate growth, using profits to increase drilling volumes.

However, some are pessimistic that resistance to higher prices will lead to an even greater slowdown in the US. “The US is on the cusp of recessionary inflation, with energy prices, and now food prices, potentially going up even further,” said Joseph Lavorgna of Natixis.

Europe will suffer more

Most agree that the effect will be worse in Europe.

Barclays cut its growth forecast for Europe this year to 3.5% from 4.1% last month.

“Rising commodity prices and risk aversion in financial markets are the main contagion channels suggesting a global stagflationary shock, with Europe being the most vulnerable region,” the investment bank said in a statement.

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JPMorgan has taken almost a full percentage off European growth this year and now projects GDP to rise by 3.2%. But the second quarter was filled to zero.

According to forecasts, Russia will suffer the most. JPMorgan forecasts a 12.5% ​​decline in GDP as the country’s economy sags under the weight of unprecedented sanctions that have frozen its $630 billion in foreign exchange reserves and cut off its economy from the rest of the world.

The Institute of International Finance predicts a contraction of 15%, twice as much as the result of the global financial crisis. “We believe that the risks are leaning to the downside. Russia will never be the same again,” wrote IIF Chief Economist Robin Brooks.