Phil Castle, The Business Times

The escalating war in Ukraine has exerted enduring economic effects across the world, including what could be slower growth and higher inflation in the United States.

“This is global, and it’s going to affect many, many economies,” said Dana Peterson, chief economist of the Conference Board.

The New York-based think tank hosted a media briefing to detail the economic effects of the war. 

Lori  Esposito Murray, president of the Committee for Economic Development at the Conference Board, said the war in Ukraine has escalated not only in terms of armed combat, but also as an economic conflict and humanitarian crisis. 

Even if hostilities cease, economic sanctions and other ramifications probably won’t, Murray said. “The impact of this war is going to be long-lasting.”

Russia, a country with the 11th largest economy in the world, probably will become a pariah. And that could change global trade and other relations, she said.

The question, too, is how China and India will proceed and whether they will respect sanctions or pursue continued relations with Russia, she said.

Peterson said the war has induced a shock on the global economy that affects most countries.

What was forecast as strong economic growth in 2022 in the aftermath of the COVID-19 pandemic has been revised downward, she said. Year-over-year change in worldwide gross domestic product is estimated to drop a half of a percentage point to a full percentage point in 2022.

In the United States, a year-over-year decline of three-tenths of a percent to eight-tenths of a percent is estimated, she said. Bigger declines are forecast for France, Germany, Italy and other European countries.

Meanwhile, inflationary pressures are expected to mount around the globe, Peterson said.

The estimated range of year-over-year change in Consumer Price Index inflation ranges from eight-tenths of a percent to 3 percent worldwide, she said.

In the U.S., the range runs from eight-tenths of a percent to 2.5 percent.

While personal consumer expenditure inflation was expected to peak in the U.S. during the second quarter of this year at above 6 percent on a year-over-year basis, both the war in Ukraine and COVID-19 pandemic pose risks, Peterson said.

The long-term outlook is for higher inflation, she said. “We’re going to get elevated inflation for some time.”

She blamed part of the situation on a spiral in which employers pay higher wages, but then charge more for goods and services.

The Federal Reserve is expected to tighten monetary policy in response, raising its key short-term interest to
2 percent this year and 3 percent next year. While trying to curb inflation, the Federal Reserve also will try not to drive the U.S. economy into recession, Peterson said.

Still, the Fed doesn’t exert control over some of the factors causing inflation, she said.

Illaria Maseli, a senior economist on Europe at the Conference Board, said the war in Ukraine hasn’t yet severely damaged the European economy because the economy was so strong before the onset of the conflict.

However, European manufacturing has shown signs of losing momentum with lower expectations for production and longer delivery times, Maseli said.

While wage growth is expected to continue in most European countries, the war has accelerated inflation and in turn lowered purchasing power, she said.

Murray said the so-called peace dividend that followed the end of the Cold War has ended, and defense spending will increase out of fear of further Russian aggression. “The peace dividend is definitely over.”