The Russia-Ukraine war has dealt an unexpected shock to the global economy and markets. Even as the world began an uneven recovery from the COVID Crash of 2020 and inflation pressures began to rise, the war has spiked geopolitical risk premiums and exacerbated supply chain difficulties and added more inflationary pressures. From an economic perspective, rising inflation and inflation expectations are forcing central bankers to react with more hawkish monetary policies, which raise recession risk.
It's not a pretty picture. Now that we know what war looks like, let's engage in some scenario planning. Imagine peace. How would the global economy and markets react?
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