Global Financial Condition Suffers Under High Energy Prices, Ukraine Conflict

Global financial conditions are the worst they’ve been in years, as high energy prices and the Russia-Ukraine conflict, along with sliding stocks and supply chain setbacks, portend a dire future, Reuters reported Monday (March 7).

Financial conditions, as the article said, are a basket of metrics, including exchange rates, equity swings and borrowing costs, that affect the money available to spend and invest in the economy. And the conditions are currently tight.

Goldman Sachs authors one of the most widely used financial conditions indexes, has previously shown that a 100-basis-point tightening cuts growth by one percentage point in the coming year.

Reuters wrote that the Goldman Sachs global financial conditions index (FCI) is at 100.2, 60 points tighter than before the Ukraine conflict began. The last time it was at this level was March 2020, when the pandemic shutdowns began.

And it might not be over yet, according to Rene Albrecht, strategist at DZ Bank.

He said if inflation gets higher, and central banks raise interest rates, financial conditions will tighten more.

“Economic dynamics will slow down further, inflation will be high nonetheless and you will see second-round effects and then you get a stagflation scenario,” he said. By this, Reuters noted he means a combination of rising inflation and slower economic growth.

Read more: Visa, Mastercard Pullout in Russia Underscores Importance of Traditional Networks to Crypto

Many companies have boycotted Russia because of its invasion of Ukraine. That includes Visa and Mastercard, which were the main ways of making payment with bitcoin.

PYMNTS wrote that this makes it harder in Russia to use crypto as anything other than an investment.