War in Ukraine Lives and livelihoods, lost and disrupted Report

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Web 2022UkrianeExhibit 2 of 3Exhibit 3The eurozone economy is highly exposed to the conflict in Ukraine.Eurozone real GDP growth scenarios as of March 121BContained disruptionwith moderate policyresponseHostilities end withina few more weeksGrowth vs previous quarter, % Growth vs previous year, %2514302–110–2–1Q1 2022 Q1 20232022 2023 20242AExtended disruptionwith robust policyresponseEnd of hostilities isin sight in the secondhalf of 2022Growth vs previous quarter, % Growth vs previous year, %2541302–110–2–1Q1 2022 Q1 20232022 2023 20243BSevere and escalatingdisruption withmoderate policyresponseProtracted conflictintensifies the refugeecrisis in Central EuropeGrowth vs previous quarter, % Growth vs previous year, %210–1–2Q1 2022 Q1 2023543210–12022 2023 2024Source: National statistics agencies; McKinsey analysis, in partnership with Oxford EconomicsThe Russia/Ukraine discussions announced onMarch 16, 2022, if agreed, would likely result inthis scenario.Scenario 2A: Extended disruption with robustpolicy responseIn this scenario, the end of hostilities is in sight inthe second half of 2022. Sanctions do not extendinto the energy sector; energy exports from Russiato Europe keep flowing. However, natural-gasprices in Europe return only to their precrisis peakof about $30 per MMBtu, and Brent crude tradesbetween $90 and $100 per barrel throughout 2022.Consumer confidence bounces back by the end ofthe year, and households use their pent-up savingsto drive a surge in demand, particularly for services,and businesses respond with additional investmentsand hiring. Further, sentiment on energy policyshifts rapidly given new concerns about energyinsecurity. Businesses and governments make nearterminvestments in additional fossil fuel capacity toensure resilience—and also accelerate investmentin sustainable energy.8 War in Ukraine: Lives and livelihoods, lost and disrupted
Shocks to energy, food, and other commoditiesboost eurozone inflation to more than 4 percent in2022, versus 2.5 to 3.0 percent in 2021. Exhibit 4reviews energy prices and inflation in each of thethree scenarios. But prices fall back as a resolutionto the war comes into view. By early 2023, theeffects of energy shocks recede, and central-bankactions successfully slow inflation, with consecutivemonthly increases in prices trending downward.Inflation expectations remain elevated relative toprepandemic norms but are stable, providing astrong signal that inflation has been contained.With elevated price levels in the near term, as wellas the shock from the invasion, GDP growth in theeurozone and Germany is essentially flat in 2022.Growth in the eurozone rises to 2.1 percent in 2023and 4.8 percent in 2024. The German economygrows slightly faster: 2.7 percent in 2023 and5.5 percent in 2024, buoyed in part by increasedspending on defense.Scenario 3B: Severe, escalating disruption withmoderate policy responseIn this scenario, protracted conflict intensifies therefugee crisis in Central Europe. Western countriesand Russia further extend sanctions, leading tothe shutdown of oil and gas exports from Russia toEurope. European gas prices more than double to$70 per MMBtu in early 2022, from their alreadyhighlevel of about $30, and Brent crude jumps to$150 per barrel.Eurozone headline inflation spikes to more than7 percent on the year. The continent can replacesome of its natural-gas shortfall in part by buying onthe spot market and in part by slowing the shift awayfrom coal. Producing and consuming nations canbuild new liquefied natural gas (LNG) export/importinfrastructure over time, but in the near term, higherprices, lower real incomes, and reduced consumerspending will result in some demand destruction.Web 2022UkrianeExhibit Interactive 3 of 3Exhibit 4Energy prices and inflation are likely to vary across the scenarios.Energy prices and inflation are likely to vary across the scenarios.Energy prices and inflation scenarios as of March 91B 2A 3BCrude oil, Brent, $ per barrel160Natural gas, Europe, $ per MMBtu¹80Inflation, 4-quarter % change 281401207060610080605040304240202010000–22020 2022 2024 2020 2022 2024 2020 2022 2024¹Million British thermal units.²Eurozone headline consumer price index.Source: National statistics agencies; McKinsey analysis, in partnership with Oxford EconomicsWar in Ukraine: Lives and livelihoods, lost and disrupted9
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War in Ukraine Lives and livelihoods, lost and disrupted Report

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