Equity Capital Markets

The Macroeconomic Picture

With the global economy heading into unprecedented territory, we look at the impacts for Europe.

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By Duncan Smith, Peter Schaffrik and Ed Boyce
Published 0, 0000 | 3 min watch
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Key Points

  • Europe’s economy was strengthening prior to the Ukraine crisis, with consumption, demand, government spending and corporate investment all rising.
  • However, consumers will be significantly challenged by the current environment that will impact on their spending habits.
  • Supply chain issues and a new focus on security could reverse some of the globalization trend.
  • An emphasis on security is also helping to unify European nations, which may smooth future action as internal politics are set aside.

The global economy is heading into unprecedented territory. Following a global pandemic, Europe is seeing war for the first time in decades, while challenged by inflation, supply chain issues and the resulting cost-of-living crisis.

However, the inflation is coming from an explosion in activity as lockdowns eased and economies reopened. The European economy was arguably in its best position since the global financial crisis coming into 2022, with record low levels of unemployment, rising government spending and corporate investment, and growing demand and consumption.

“In the recovery that we currently have, in contrast to the previous ones, we now have the economy firing on all cylinders.”



However, the question now is, how will the Ukraine crisis affect the economy going forward? Consumers, in particular, are being challenged by the impacts of inflation and as prices rise, they may change their spending habits. Investors too are focused on inflation and its consequences, and whether its effects will be near- or longer-term.

Globalisation sought to drive down costs and increase efficiency, and it was arguably assumed that supply would be secure. Now security on every level, from energy to food to military security, are firm focuses for European governments and supply chains need to adapt to both mitigate rising costs and ensure security of supply.

In this volatile environment, however, there are benefits alongside the challenges. The economy is still strong, despite the myriad challenges. And the Ukraine crisis has been incredibly unifying for Europe.

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