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Ukraine conflict impacts the economy again: oil soars past 125 dollars

Mar 10, 2022

Redacción Mapfre

Redacción Mapfre

A new central scenario is taking root among analysts. They have already started to envision a context of reduced growth expectations and inflation that should surge even higher. Inevitably, the situation in Ukraine will not only have repercussions on the Eurozone's economy: the markets are already experiencing the extreme volatility that such conflicts can generate. In fact, the stock exchanges’ reaction to every news report suggests the waters are more troubled than we might think.

We are witnessing the most obvious example this week, with unexpected falls and rises that seem to reflect investors’ fear of risky assets. Specifically, the past two weeks have seen record outflows of funds from European equities, a situation that, according to Alberto Matellán, chief economist at MAPFRE Inversión, could worsen “the longer the conflict lasts.” “A negative scenario is being priced in, but within reason,” the expert adds, warning that “there is still room to fall further” in such a volatile context.

The pessimism hanging over the European indexes has also impacted the energy sector, one of the main culprits of rising inflation, and experts do not dare to predict where it will level off. Brent crude, a benchmark in Europe, soared above the 125-dollar mark during the week. Ismael García Puente, fund manager and head of investments at MGP, believes the price of oil has become one of the biggest determinants of price levels and growth: "Every $10 increase in the price per barrel means 0.2% less growth and 0.5% more inflation." The chief economist at MAPFRE Inversión estimates an upper limit of 150 euros, a price that is unlikely to be surpassed "if other production mechanisms are put in place."

But, as we have already seen in recent weeks, nothing is impossible, least of all for Russia, which could go into default: according to some rating agencies, international sanctions could force the country to default on its sovereign debt. No dollar bonds will come due until September, but beware: "If the maturity date were today, it would be unlikely to make those payments," Alberto points out. Russia's energy-related business sector is under a similar level of alert and could be compromised, as the ban on imports by some countries “would reduce aggregate demand for fossil fuel. This is a setback because it's one of their biggest sources of income,” Ismael explains.

As a result of rising commodity prices, we are already seeing the first shutdowns in some companies. For large companies, “which have sufficient resources to cover themselves,” the expert points out, the situation would be less complicated than for smaller ones: “In these cases, governments must take fiscal measures to mitigate the effects,” he says.

Good prospects for the markets in the second half of the year

Good prospects for the markets in the second half of the year

The first half of 2024 was quite positive for equity markets, and forecasts for the next six months are equally bright. Which sectors have the most potential? What about fixed income? Alberto Matellán, chief economist at MAPFRE Inversión, goes into the details.

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