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Russia and Ukraine are engaged in a high-intensity but
indecisive war of attrition in Donbas. Ukrainian forces are likely
to fall back to prepared defensive positions near Bakhmut,
Kramatorsk and Sloviansk, all in the Donetsk region. Ukrainians'
ability to defend these key positions in Donetsk will depend on the
ability to deploy new weapons transferred by the US, UK, Poland,
and other allies. Russia is within reach of capturing the entire
Luhansk region of Ukraine in coming weeks.
The European Council - comprising the heads of states and
governments of the 27 European Union member states - has adopted a
sixth package of sanctions against Russia. This latest round of
sanctions will restrict about 90% of Russian oil imports into the
EU. Increasing intra-EU frictions over the bloc's response to the
war in Ukraine are likely to continue to cause delays in advancing
further sanctions in the one-year outlook.
Sanctions continue to weigh on Russia's financial sector.
Russian lender Sberbank's subsidiary in Kazakhstan is the subject
of talks for its sale to Kazakh financial holding company Baiterek,
Reuters has reported, citing undisclosed sources. Baiterek is
state-owned, with the Kazakhstan Development Bank falling under its
ownership.
Pre-existing vulnerabilities in emerging European banking
sectors could be amplified by a further escalation or sanctioning
of the Russia-Ukraine war. Shocks in growth or inflation, or a
revival in COVID-19 infections could prompt tighter macroprudential
policy in the near term and also impact these sectors. Increased
lending to the micro, small, and medium-sized enterprise (MSME)
segment in mainland China and edged up impairment ratios at banks
in Latin America could also be on the horizon.
The ongoing effects of the Russia-Ukraine conflict on the prices
of key commodities, such as energy and agricultural products, are
contributing to exceptionally elevated inflation rates in the
eurozone in recent months. Those effects are likely to continue in
the near term.
The industrial growth outlook in Europe faces challenges from
continued supply chain disruptions, exacerbated by the war's impact
on transportation, prices, and availability of inputs as well as
weakening demand and higher risk aversion.
The EU has published its REPowerEU plan, which sets out measures
aimed at discontinuing imports of fossil fuel from Russia to the EU
in response to the Russian invasion of Ukraine. The policy would
accelerate its reduction in energy consumption and focus on
alternative forms of energy, including hydrogen and liquefied
natural gas.
Read through to China
A key cause in the drop seen in global manufacturing output in
May was a sharp downturn in factory production within mainland
China for a third successive month, exacerbated in Europe by the
Ukraine war. China's reported output drop in May was the
third-quickest recorded since the height of the global financial
crisis, reflecting ongoing efforts by the Chinese authorities to
contain the spread of COVID-19.
Mainland China's pandemic situation is stabilizing and lockdown
restrictions are easing across the geography. The Chinese economy
is expected to recover in June. The "dynamic zero-COVID" policy,
slowing income growth, and weakening global economy will continue
to pose risks for mainland China's economic recovery.
What we're watching for:
Cyberattacks targeting government, banks, media websites in
Russia and Belarus
Free-floating mines pose risk to Black Sea approaches to
Romanian, Bulgarian ports
Posted 10 June 2022 by Alyssa Grzelak, Director, Banking Risk, S&P Global Market Intelligence and
Dijedon Imeri, Senior Analyst, Country Risk, S&P Global Market Intelligence and
Jack Kennedy, Senior Economist and
Jessica Leyland, Senior Analyst – Middle East & North Africa, S&P Global Market Intelligence and
John Raines, Principal Global Risks Adviser and Head of North America, Economics & Country Risk, S&P Global Market Intelligence and
Ken Wattret, Vice President, Economics, S&P Global Market Intelligence and
Kevjn Lim, Principal Research Analyst, Middle East and North Africa, Country Risk, S&P Global Market Intelligence and
Laurence Allan, Director , Economics and Country Risk, S&P Global Market Intelligence and
Petya Barzilska, Sr. Research Analyst II, Europe & CIS Country Risk, S&P Global Market Intelligence
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
