Impact on business confidence of a Russian invasion of Ukraine could be temporary

Despite the human tragedy that a war in Ukraine would cause, economists at Berenberg believed the most likely scenario would be a temporary impact on business and consumer confidence, and economic activity in Europe more generally, as well as prices.

In a research note sent to clients, the broker's chief economist, Holger Schmieding, said the risks should be put into perspective, although he conceded that the "temporary setback" to growth could be larger than in the first half of 2014, when Russia last moved against Ukraine.

Nevertheless, his expectation was that the European Central Bank would "look through" a further spike in energy prices over the next few months, should it occur, and that it would not bring interest rate hikes any closer.

Schmieding also thought that by paying higher prices for energy imports from other regions and subsidising the energy bills of poorer households, the European Union could alleviate the pain of a shortfall in supplies of natural gas from Russia.

The economist noted how in the first half of 2014, real gross domestic product had decelerated from a quarter-on-quarter pace of 0.4% during the first quarter of 2014 to 0.2% in the second quarter, only to rebound by 0.5% during the third quarter.

Nevertheless, a Russian invasion of Ukraine was not the broker's base case, even though Schmieding was conscious of the fact that "as economists, we cannot really judge Vladimir Putin’s intentions".

"All in all, we would expect the European economy and markets to rebound shortly afterwards from a temporary setback which a Russian attack on Ukraine would probably cause. Let’s hope it does not come to that."