The latest cyclical surveys show the impact of the war in Ukraine. Confidence of households and companies has dropped, although, concerning the latter, significant differences exist between countries and sectors. In Germany, the IFO business climate has plummeted whereas in France, the decline is more limited. Services tend to be doing better than manufacturing. Importantly, employment expectations of companies remain at an elevated level. It is a key factor to monitor in view of what it signals about companies’ confidence in the medium outlook as well as for its influence on households’ sentiment about their future personal situation. This last point is particularly important given the plunge in household confidence, which is largely related to concern about the general economic outlook
Our different uncertainty gauges are complementary, in terms of scope and methodology. Starting top left and continuing clockwise, US economic policy uncertainty based on media coverage has declined since the start of the year but the latest data are for February and do not yet reflect the impact of the war in Ukraine. That also applies to uncertainty based on business surveys, which has been declining since the beginning of the year. Geopolitical risk – based on media coverage – has seen a huge jump following the invasion of Ukraine. For the same reason, the cross-sectional standard deviation of daily stock market returns of individual companies – a measure of financial uncertainty – has risen in the US and the euro area, although to a rather limited extent.
Bottlenecks in shipping transport are already intense and could get worse. First, it is becoming very difficult, not to say impossible, to move merchandises by rail and road networks between China and Europe, because of the routes crossing Russia and the conflict zones in Ukraine. Furthermore, many Chinese production lines, and logistics around the country’s ports, have been disrupted by a resurgence of Covid-19 cases and the authorities’ ‘zero-Covid’ policies.
The UK is by no means the country with the greatest trade exposure to Russia: it buys virtually no Russian gas and in 2019, sent only 0.7% of its goods exports there (compared to 2% for Germany, for instance). Even so, in the UK, as in the whole of Europe, sanctions and shortages resulting from Russia’s war in Ukraine will increase inflationary pressures and damage economic prospects. The Office for Budget Responsibility (OBR) has cut its growth forecast for 2022 from 6% to 3.8%, whilst inflation could climb from 6.2% in February to a peak of 9% by the year end.
After a week of rises, figures for the Covid-19 pandemic have stabilised worldwide, albeit at a high level. 12 million new cases were recorded around the world in the week of 17-23 March, a figure similar to that in the previous week. However, the picture is uneven around the world.
