Asset allocation at a time of war: Brace for inflation and lower growth

AT THE time of writing, sanctions and counter-sanctions resulting from Russia's invasion of Ukraine were unsettling economic prospects, with the risk of a sustained rise in raw material prices. Depending on the outcome of the sanctions, we believe we could see temporary spikes in Brent oil to US$140.

Higher inflation, lower growth

The euro area's high dependence on Russian gas makes it more exposed to the conflict than other places. There are multiple channels through which the Russia-Ukraine conflict could impact the euro area's economic outlook. The commodity channel is the most important, followed by the impact on economic sentiment, trade and financial conditions. The full effect is still hard to gauge and will depend on the duration of the conflict, the severity of sanctions and the risk that the violence could spread to other countries.