For the rest of the year, assuming a gradual improvement in the COVID-19 situation, further progress in the recovery was expected, underpinned by a decline in uncertainty, the gradual disappearance of bottlenecks, the maintenance of favourable financing conditions and, in Europe, the gradual implementation of the Next Generation EU (NGEU) programme. As regards inflation, the data in the first two months of the year had continued to surprise on the upside compared, for example, with the projections made in late 2021. 1  The possible economic consequences of the conflict  The Russian invasion of Ukraine, on 24 February, and the western world’s response, which has led to the imposition of unprecedented economic sanctions on Moscow, represent a new and foreseeably hugely significant shock, with adverse consequences in terms of a weaker economic performance and greater inflationary pressures. To assess the scale of these effects, it is helpful to describe the different channels through which this new shock will affect the global economic outlook:  i. Energy and non-energy commodities. One first economic impact of the invasion of Ukraine stems from the fact that Russia and, to a lesser extent, Ukraine, are among the world’s main producers of certain energy and non-energy commodities, and that Europe is highly dependent on imports of some of these products, especially oil and gas from Russia, but also cereals from Ukraine.1  The price of many of these commodities has already risen significantly as a result of the conflict.

Moreover, these decisions may be postponed given the large-scale changes concerning the regulation of greenhouse gas emissions and corporate taxation. These transformations can significantly change the economic situation in many industries and the return on investment in them. Such uncertainty is able of decelerating capacity expansion globally. In these conditions, the aggregate supply will be less elastic, responding less flexibly to the pick up in demand even over the mid-term horizon, compared to previous years. 1/4  BIS central bankers' speeches  Coupled with the accommodative monetary policy and fiscal policy of major economies, all these factors strengthen the risk that the acceleration of inflation both in this country and in the majority of other countries is of a more sustainable nature than perceived at first glance. In the Russian economy, demand is growing energetically and sustainably. This is especially noticeable in the non-food segment. People continue to actively buy household appliances, construction materials, and furniture. The change in car sales is a clear manifestation of the pick up in domestic demand. In recent months, their sales have exceeded the 2018 level, which was a record high compared to 2014. The sales of apartments have increased considerably. To finance these large purchases, people use their savings, including money saved due to restrictions on foreign tourism, and take out more loans. In the services sector, the recovery has not yet completed mainly due to remaining anti-pandemic restrictions. The demand for labour is bouncing back, with some industries noting a certain deficit of labour force.