Erosion of disposable incomes
With rising prices already a concern before the war, higher commodity prices could see headline inflation in the euro area hitting eight or nine percent in coming months, spelling the biggest erosion of disposable income in decades for European consumers while uncertainty, supply chain bottlenecks and tighter financial conditions will also weigh on business sentiment.
But the European and the global economies were in a relatively good state when war and uncertainty hit, says chief analyst at Danske Bank, Jakob Ekholdt Christensen.
"First of all, the global economy was seeing a relatively strong momentum ahead of the Ukraine war. And given its relatively small size in the global economy, exports to Russia are limited except for some Nordic and Eastern European countries. The biggest impact on global growth will come through the impact of higher commodity prices on inflation and real incomes but real incomes should recover as inflation declines and wage growth accelerates," says Jakob Ekholdt Christensen.
"Furthermore, helped by the stimulus in China, strengthening economic activity will also spill over to higher export growth in the US and euro area. In Europe, we expect public and private investments to pick up speed, to boost the green transition and energy efficiency to reduce dependency on fossil fuels," he adds.