Macroscope | Peace in Ukraine would give financial markets the boost they need in 2023

The New Year is meant to signify a time of change and hope for better times ahead. 2023 will be full of challenges for world policymakers, facing the spectre of global recession, coping with tighter monetary conditions and dealing with higher inflation. Perhaps the greatest challenge of all in the short term is how to bring the war in Ukraine to a peaceful end.

It will be a tough task but imperative as the war has wreaked so much damage, not just in terms of the devastating human cost, but also the harm done to global stability, growth prospects and the chaos wrought on global energy markets.

In the run-up to the outbreak of the Ukraine war in February last year, the world had been making modest progress after the shock of the Covid-19 pandemic. Global recovery was coming back on stream, employment levels were recovering, inflation risks were a concern due to supply-chain shortages, but nothing that a return to more normal interest rate levels couldn’t handle. Stock markets in the US had reached record highs and global bond yields remained relatively subdued.

A year ago, at the end of 2021, the Organisation for Economic Co-operation and Development was cautiously optimistic for the future, projecting global growth at 4.5 per cent for 2022, moderating to 3.2 per cent for 2023 as loose monetary conditions were expected to be gradually tightened. The shock of war and the subsequent energy crisis changed all that.