Pasaulio ekonomikos apžvalga „Nordic Outlook“ (anglų kalba)
War and inflation will hamper economic growth
The COVID-19 pandemic had not yet released its grip on the world economy before Russia attacked Ukraine, creating a new crisis. Above all, the war is a humanitarian catastrophe. But in economic terms, we are now facing a whole new level of uncertainty and challenges. The invasion has intensified the problems with global value chains, trade, production, input goods, transport and energy shortages that arose during the pandemic. The sanctions against Russia with which the European Union, United Kingdom, United States and others have responded will also have major economic consequences that extend far beyond Russia's borders.
On top of this, inflation is now so high and widespread that virtually all central banks have either begun to tighten their monetary policy or plan to do this soon. Inflation which began with price increases for specific goods and intensified last autumn due to rising transport and energy prices is now visible everywhere. Central banks have consequently abandoned their previous view that inflation was a transitory effect of pandemic-related supply side disruptions. We will therefore see active measures, in the form of both long series of key interest rate hikes as well as programmes to reduce central bank balance sheets. The idea is to lift both short- and long-term rates in order to reduce demand in the economy, lower inflation expectations, restore confidence in central bank inflation targets and prevent an upward wage-price spiral that risks damaging the economy for a long time to come.
In this May 2022 issue of Nordic Outlook, we offer four in-depth theme articles that discuss the following:
- Commodity shocks
- Russia’s new role
- The new wage round
- The changing Baltics
We wish you pleasant reading and a great summer!