More on our scenarios
In this article, we refer frequently to two scenarios, one milder and one more severe:
- Scenario 1B: Contained disruption with moderate policy response. In this scenario, the end of hostilities occurs within a few more weeks. Sanctions do not escalate further and may even be scaled back; energy exports from Russia to Europe keep flowing. Before the end of 2022, natural-gas prices in Europe fall to about $30 per million British thermal units (MMBtu); Brent crude returns to $70 to $80 per barrel. GDP growth (and thus jobs and incomes) across the eurozone reverts to its precrisis trend, albeit with a first-quarter slowdown, reflecting the shock of the invasion. Inflation expectations remain elevated relative to prepandemic norms but are stable, and the European Central Bank continues to reduce monetary stimulus. Consumer confidence reverts to its prepandemic level, and businesses continue their COVID-19-exit investment plans through most of the eurozone by the second quarter of 2022.
- Scenario 3C: Severe, escalating disruption with restrained policy response. In this scenario, protracted conflict intensifies the refugee crisis in Central Europe. Western countries and Russia further extend sanctions, leading to the shutdown of oil and gas exports from Russia to Europe. European gas prices rise to about $50 per MMBtu in mid-2022, from their already-high level of about $30, and Brent crude jumps to $135 per barrel. Eurozone headline inflation spikes to more than 7 percent on the year. The continent can replace some of its natural-gas shortfall in part by buying on the spot market and in part by slowing the shift away from coal. Producing and consuming nations can build new liquefied natural gas (LNG) export/import infrastructure over time, but in the near term, higher prices, lower real incomes, and reduced consumer spending will result in some demand destruction. Central banks move assertively to combat inflation, with potential risk to economic growth.
For more on the full set of scenarios, see “War in Ukraine: Lives and livelihoods, lost and disrupted.”
On March 17, 2022, we wrote about the war’s extraordinary toll on lives and livelihoods. At that time, we set out the 12 short- and mid-term disruptions that had the most potential to reshape industries and economies. Those disruptions are gathering force. In this article, we offer 12 charts to illuminate the potential strength and direction of these shifts and their effects on lives and livelihoods. Some of these charts use the macroeconomic scenarios we laid out in our first article that provide guidance on the range of potential outcomes. We see two critical dimensions: the scale and duration of disruption, and the impact of government policy, consumer, and business responses. See sidebar “More on our scenarios.”
The invasion of Ukraine is causing a massive humanitarian crisis
The vulnerable will suffer the most
Energy policy is rotating toward secure access and source diversification
Food security is on the agenda
The race for critical materials, equipment, and commodities intensifies
A new age of supply chain management has arrived
Global technology standards are more likely to separate
Financial-system effects are unpredictable
Defense spending is rising
Cyber is a stage for conflict
Corporate actors are taking a stand
Volatility, volatility, volatility
These disruptions are already affecting people’s lives and livelihoods with potent force and should be part of every company’s scenario planning. And the longer the war lasts, the more powerful and unpredictable these disruptions may become.