Tighter financial conditions, diminished consumer and business confidence, and elevated uncertainty will also have an effect, though to a lesser extent. The economic impact is likely to be more profound in the euro area, given its greater dependence on Russian energy, than in the United States or the United Kingdom.
Persistently higher energy prices and tighter financial conditions could shave up to a percentage point from previously anticipated 2022 growth for the euro area, the United Kingdom, and the United States. Meanwhile, inflation, as measured by headline consumer price indexes, could accelerate by 1 to 3 percentage points above what Vanguard had previously forecast.
Investors need to appreciate the tremendous uncertainty confronting markets, said Shaan Raithatha, a London-based Vanguard senior economist, part of the team researching possible effects from a range of potential developments. He emphasized, “The work we’re doing is based on conditions at present, and the situation is clearly fast-moving.”