- Select a blog category
After last week’s detailed analysis of the economics of the Ukraine crisis today’s short briefing will come as a relief to many readers. Here are what we currently see as the six most significant economic effects of the war.
The human and geopolitical consequences of Russia’s invasion of Ukraine eclipse the economic ones, but it is the latter that is our focus in this note. This week’s briefing starts by examining the linkages between the conflict and the world economy and concludes by considering three lasting changes that could come in the wake of the crisis. The complexity and significance of the issues mean today’s briefing is roughly twice as long as usual.
On the face of it emerging market (EM) economies have come through the pandemic in good shape. Activity in emerging economies held up better than in Europe and North America and the headline numbers suggest that the pandemic has taken a lesser toll than in many rich countries.
Across the West inflation is hitting multi-decade highs. US inflation rose from just 0.1% 18 months ago to 7.5% in January, a 40-year high. In the UK and euro area inflation rates are running at over 5.0% and have further to go. The Bank of England expects Britain’s inflation rate will reach 7.25% in April.
After blistering gains in 2021 global equity markets have had a shaky start to 2022. Global equities have dropped 4% so far this year, with technology stocks, one of the big drivers of rising equity markets, underperforming. So far this is a pin prick in what has been a stellar run for equities; US equities are still just 7% below the all-time peak reached on 3 January.
We start this week’s Briefing with a question. Rising inflation and April’s increase in National Insurance Contributions (NICs) are set to squeeze consumer spending power hard. Given that the average person in work is likely to earn less, after inflation, than last year, what do you think will happen to consumer spending this year? Will it decline, stay roughly the same, or rise?
Brexit proper, the UK’s departure from the EU’s single market a year ago, passed without major incident. Borders continued to work and lorries kept moving.
Yet beneath the surface, Brexit is reshaping patterns of trade. What happened at our borders is a metaphor for Brexit as a whole. There have been significant effects, but the most dramatic, and headline-worthy, predictions on both sides of the Brexit argument have not been realised.
2022 should be the year in which the developed world learns to live with COVID-19. High levels of vaccinations have helped weaken the link between case rates and deaths in richer countries. Despite spreading at lightning speed and generating record case rates, the Omicron variant has been less damaging to health than previous waves.
A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. To subscribe or view past editions google 'Deloitte Monday Briefing'.
For the last ten years this has been the week in which we release our Christmas reading list. This year is no different, but we start on a sombre note, with an assessment of how the rapid spread of the Omicron variant could affect public health and the UK economy over the coming months.