Source IHS Markit
LONDON, UK--Russia's regional ambitions represented a longstanding, open test. Yet, with the invasion of Ukraine on 24 February, Europe's security environment, Ukraine and Russia's economic outlook, the stability of markets have been thrown into the air and are in the process of reshuffling.
The deeper dive
Despite intermittent ceasefire talks, no clear off ramp to the conflict in Ukraine has yet emerged. In line with the Economics & Country Risk team's forecast for the six-month outlook, Russia continues to pursue an escalation pathway, most recently, with a 'Phase 2' focus on capturing all of the Donbas region.
While, in our most likely scenario, the conflict remains confined to Ukraine, we contemplate war trajectories where Russia seeks to extend and sustain fighting beyond Ukrainian borders.
Beyond the nearer-term implications for Russia's economy - our economists forecast an 11.1 percent contraction in real GDP in 2022 - and for Ukraine - which is expected to see a staggering 45.7 percent contraction in real GDP in 2022, the conflict is expediting a rethink of a host of longer time horizon strategic challenges.
On global security, everything from the future global political architecture to security alliances and nuclear proliferation are under scrutiny. An emerging narrative of the conflict, thus far, has been around a growing consensus of the unification of states against the Russian offensive and, thus Russia itself.
Similarly on global financial integration, spanning the future of globalisation, regionalisation, to trade relations and sanctions, much is now in flux. The broadly-applied sanctions campaign against Russia's banking, defence and commodities sectors, its individuals and institutions, led by the United States and its European allies, has been championed for its effectiveness in isolating Russia from the global economy.
The pandemic catapulted supply chain interlinkages and vulnerabilities to the fore. Russia's invasion of Ukraine presents another consequential supply chain shock. The sanctions on Russia have precipitated a renewed conversation around sources of energy reliance and the pace of the energy transition.
Irregular migration of those fleeing conflict for Europe is not new. 2015 brought a surge of migrants seeking to escape the war in Syria. Yet, the rapid acceleration of migration from within Europe across Europe - nearly six million have left Ukraine and another seven million internally displaced - precipitated by Russia's invasion has no recent comparison.
We always knew Putin's ambitions for Russia's neighborhood would likely jockey for attention. We just did not know when.