Conducted just before and at the onset of the war in Ukraine between February 14 and March 1, 2022, the results understandably point to economic turbulence in the coming months.

GECS’s index of concern about operating costs jumped again in the latest survey by nine percentage points and is now at its highest level on record at 62 percent.

This dramatic rise has played out over the last year and tracks the effects of rising energy and transport costs caused by supply chain shortages and disruption.

In the Q1 survey, global confidence and global orders were little changed, up by four points to +9 for confidence and by two points to -3 for orders. Other economic activity indicators, such as employment and capital spending improved. Overall, the Q1 survey continues the trend of modest overall growth through to the middle of the year, following the strong post-pandemic recovery of 2021.

In Q1, the Middle East was the best performing region with jumps in confidence and orders, likely a reflection of the increase in the oil price. Confidence and orders fell back in North America, influenced by the effects of the spread of the Omicron COVID variant.

The level of orders in advanced regions remains above that in emerging regions, as it has throughout the post-pandemic recovery.

GECS’s two “fear” indices – measured by concern that customers and suppliers may go out of business – were little changed in the Q1 survey, down by two points and one point respectively. Both indices have fallen back from extreme levels seen in 2020 but are still above pre-pandemic levels.

Economic conditions are expected to continue to shift as the full impact of the Russia-Ukraine conflict is felt this spring.

“Given the fast-moving and unpredictable nature of the war in Ukraine, it’s important to note that the survey may not fully capture the likely effects of the conflict,” said ACCA’s chief economist Michael Taylor. “But we have a picture of the immediate economic costs of the war in Ukraine and the main conclusion is that the rise in commodity prices, especially for oil, natural gas, and wheat will push inflation even higher in most economies, further squeezing real incomes and slowing economic growth.”

Compared with previous forecasts, global growth may be reduced by as much as one percentage point this year, to around 3.25 percent.

“We again asked respondents to name their two biggest economic risks – 51 percent said supply chain disruption and 50 percent said renewed COVID restrictions,” said Loreal Jiles, vice president of research and thought leadership at IMA. “Compared with the Q4 survey, there was an increase in rising interest rates as a risk, up to 40 percent from 26 percent. We expect U.S. interest rates to rise steadily this year, and this may result in a tightening of global financial conditions.”

Both ACCA and IMA warn of the risk of policy mistakes.

“Removing the exceptional policy ease introduced to mitigate the effects of the pandemic was always going to be tricky,” Jiles continued. “Over the last year, supply shortages and now the Russia-Ukraine war have resulted in a stagflation scenario reminiscent of the 1970s which was a time of weak economic growth combined with high rates of inflation.”

“The economic consequences of Russia’s conflict with Ukraine are yet to fully emerge,” concluded Taylor. “Central banks in advanced economies face a difficult judgement call that could result either in over-tight policy causing recession or too easy policy embedding inflation and inflation expectations. Policies need to be thought through and stress tested very carefully in the days, weeks, and months ahead.”

Thu Thuy