In July, the American company Columbia Threadneedle presented possible scenarios for the development of events in Ukraine: escalation of the conflict, de-escalation, status quo, Chinese intervention. Each of them will have its own impact on the European and US markets.
According to the American edition Barron’sthe company believes that maintaining the intensity of the conflict at today’s level may mean a protracted war, which means:
“In this scenario, the US and European markets could expect slower growth with tighter headline inflation, mainly due to higher oil prices.”
Columbia Threadneedle claims that in this case, the US and European markets could see growth of just 1.8% and 2.2% respectively in 2023, while the Asia-Pacific markets could fall 0.3%.
Scenario number two – the Russian Federation provokes an aggravation of the conflict, experts suggest:
“This is not an unlikely scenario: Russian Defense Minister Sergei Shoigu last week ordered his troops to intensify hostilities in Ukraine due to retaliatory attacks by Ukrainians in Russian-occupied territories.”
According to Columbia Threadneedle, with such an escalation, the stock markets of Europe and the Asia-Pacific region in 2023 could fall by 16.7% and 10.2%, respectively. The fall of the US markets is predicted by only 2.2%.
Scenario number three: Chinese intervention
This is “the most catastrophic scenario for the global economy.” Columbia Threadneedle believes that if China becomes more militarily aggressive by providing aid to the Russian Federation or fueling its own conflict, formal retaliatory sanctions against Beijing could trigger a global recession next year: Asia-Pacific markets will fall by 34%, while markets in Europe and the United States by 27% and 20% respectively. Explaining the reason, experts say that China is more closely connected with the world economy than Russia.
And scenario number four – de-escalation
Such an option would see Russia capitulate or there would be a regime change that would end the conflict. At this point, the US, European, and Asia-Pacific markets could see growth in 2023: around 3.6%, 8.7%, and 11.3%, respectively.
Columbia Threadneedle notes a high risk of a recession in the US economy. Investors expect the Fed to set the federal funds rate at 2-2.5% by the end of the year, with a recovery expected in 2023. As far as the European Union is concerned, the company notes that due to energy disruptions, markets in Europe could go into a deeper recession than those in the United States.