Conflict in Ukraine could lead to financial crisis ‘worse than 2008’

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Ukraine’s conflict and central bank monetary policy, coupled with high inflation and weak growth, are creating an economic emergency that could be worse than the credit crunch, investors said.

A study compiled by CoreData analyzed the opinions of 200 institutional investors, with a fifth of respondents saying that the current economic situation will lead to an economic crisis worse than that of 2008.

About half of those polled believed that the war in Ukraine would lead to “stagflation” in the global economy.

Stagflation is an economic condition in which inflation remains very high, but economic growth is below trend.

Respondents said they expect real assets to be the asset class offering the best protection against looming economic conditions.

Jon Mawby, bond fund manager at Pictet, said: “Politicians have looked to central banks to solve the inflation problem, and may have told them they don’t care how it is. solved, especially in the United States.

“But as growth slows and we potentially get a recession, politicians will come back to central bankers to ask what they are doing. I was always taught to believe that high prices are the cure for high prices .”

The latest US inflation figure came in at 8.3%, a 40-year high. The most closely watched component of headline inflation data right now is core inflation, as it excludes the highly volatile food and energy sectors.

Core inflation therefore acts as a measure of how inflation is transmitted to the economy as a whole.

In the United States, it increased by 0.6% in April, indicating that the imported inflation which is the consequence of the conflict in Ukraine is spreading to the national economy.

Preventing the latter from happening is generally seen as the primary rationale for tightening monetary policy at present.

Rupert Thompson, chief investment officer at Kingswood, said: “U.S. consumer price inflation eased in April, but less than expected and remained at its highest level in 40 years.

“The headline rate went from 8.5% to 8.3%, while the base rate went from 6.5% to 6.2%.”

He suggested that any hope that April would mark the peak of US inflation will have been challenged by the numbers, especially with core prices posting a sizable 0.6% gain in the month, against 0.3% the previous month.

Thompson added, “The data makes it all the more certain that the Fed will raise rates by 0.5% in June and July.”

david.thorpe@ft.com

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