| Hello and a big welcome to our new friends from ZABALA, Fonko Hydro, Levin Sources and others. This week’s news cycle has been dominated by two prospective ‘deals’: the EU’s bid to reach an agreement with the US to avoid tariffs on European exports, and Washington's push for a negotiated settlement to Russia’s war in Ukraine. The first would almost certainly be a tonic for Europe’s ailing economy. But what about the second? Unsurprisingly, the economic impact of an end to the Ukraine war will depend on what kind of deal is eventually reached. Nevertheless, many analysts predict that an end to the fighting, however temporary or politically distasteful, would be economically beneficial. Perhaps the most obvious impact of any such agreement would be a reduction in energy prices, triggered by the resulting surge in EU imports of cheap Russian gas. This trend is already reflected in the data. The Dutch Title Transfer Facility (TTF), the European gas price benchmark, has fallen by around 14% since Donald Trump’s shock announcement on 12 February that negotiations to end the conflict would begin “immediately”. Experts note that this drop in energy costs could, eventually, ease general inflationary pressures across the bloc. This, in turn, could allow the European Central Bank (ECB) to more aggressive when it comes to rate cuts and hence boost the EU’s low levels of investment. Indeed, Goldman Sachs recently estimated that a “comprehensive and credible” peace deal could reduce euro area inflation by up to 0.5 percentage points – precisely matching the difference between the ECB’s 2% target and the current eurozone inflation rate of 2.5%. Goldman also predicted that an end to the three-year war would have a similarly positive impact on EU growth: consumer confidence would rebound, business investment would surge, and European stock prices would rise. (Indeed, as with gas prices, the impact on equities is already being felt.) Ukraine’s reconstruction would also provide European companies with a steady stream of business opportunities, including, potentially, expanded import and export markets. This would likely outweigh the negative impact on the European labour market caused by Ukrainian refugees’ returning home. All in all, Goldman estimates that even a “limited truce” would boost the eurozone’s GDP by 0.2%, while a genuine, lasting peace could raise overall output by as much as 0.5%. Thus, it seems that such a deal could, at the very least, partially mitigate the impact of Trump’s tariffs. Indeed, there is a chance that such a deal could counteract their impact entirely: in another study published last year, Goldman estimated that its “baseline scenario”, which “assumes a more limited set of tariffs on Europe”, would reduce the eurozone’s GDP by 0.5%.
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