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This weekend showed important developments in the geopolitical crisis currently shaking up the world.
The European sanctions that were thought to be moderate, despite the voluntarist declarations, turned out to be much more severe and beyond that, real geopolitical upheavals appeared in Europe. The psychological and political shockwave of this crisis can be seen in the historical change in Germany, which decided on a massive rearmament programme and a clear involvement in the conflict by sending equipment to Ukraine. But the European reaction was global and not limited to Germany. The escalation becomes obvious with the nuclear threat brandished by Moscow against this European commitment.
On the economic front, it is worth noting the massive sanctions decided against Russia and its leaders, particularly by Europe. The Russian banking system will be largely impacted, and the Russian economy as a whole, is under pressure.
Beyond the emotion we all feel about this crisis, the economic impacts are worrying. They are naturally negative for the world economy and, in particular, for the European economy. The issue of commodities and gas is more important than ever, as we can expect a Russian reaction to this package of sanctions and to the European involvement in Ukraine. We can now imagine that the European Central Bank (ECB) will have to change its position and quickly reconsider its priority objective of price stability. Indeed, inflation will eventually have a recessionary effect and the scenario of a price-wage loop is likely to become more distant.
Regarding our portfolios, we were not directly exposed to Ukraine and Russia. We see visibility as still very limited, and the latest developments call for increased caution in the markets. Even if central banks were to make further efforts to improve financial conditions, this will only have a stabilising effect on the markets at best.
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