ECONOMY

S&P Global says Ukraine invasion will hit Australian economy and drive up prices

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Russia’s invasion of Ukraine will hit the Australian economy over the next two years and push up inflation in the near term, new analysis shows as Treasurer Josh Frydenberg warns motorists to expect ongoing pain at the bowser.

Work released on Thursday by ratings agency S&P Global on the worldwide impact of the events playing out in Ukraine shows Australia, while benefiting from higher commodity prices, will suffer slower growth and higher cost-of-living pressures.

Russia's invasion of Ukraine will hurt the global economy and drive up inflation, with Australia taking a hit, S&P Global says.

Russia’s invasion of Ukraine will hurt the global economy and drive up inflation, with Australia taking a hit, S&P Global says. Credit:AP/Evgeniy Maloletka

Global oil, wheat, nickel, iron ore and gas prices have surged since Russia’s invasion and the imposition of sanctions by Western nations against the Putin government.

S&P has slashed its forecast for Russia and is now expecting its economy to contract by 6.2 per cent in 2022 before growing barely above zero for the next two years. It had been tipping the Russian economy to expand by 2.7 per cent before this year’s war.

The agency is also expecting inflation to average 13.5 per cent in Russia.

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In Australia, S&P now expects inflation to average 3.9 per cent this year, a 1.1 percentage point lift on its initial forecast. That is almost 0.75 percentage points above where the Reserve Bank believes inflation will be this year.

Growth this year is likely to be a little higher, at 3.6 per cent, but the agency downgraded its expectations for 2023 (to 2.6 per cent) and even lower in 2024 at 2.2 per cent.

Global growth is tipped to be lower and inflation higher, with the agency warning the situation in Ukraine could worsen.

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