China News Agency, Berlin, February 24 (Reporter Ma Xiuxiu) A research report released by the German Allianz Group on the 24th led by the group's chief economist Ludovic Subran believes that the conflict between Russia and Ukraine has escalated. It may have a significant impact on the economy and finance through the three major transmission channels of energy, trade and finance.
The report believes that under extreme scenarios, a recession in the euro zone will be a high probability event.
Headquartered in Munich, Germany, Allianz Group is one of the world's leading financial services groups and one of the world's top three property and liability insurers.
The report, titled "Russia-Ukraine Crisis: Escalating Conflict," released on the same day, expects the West to take further measures against Russia on top of the first batch of sanctions.
But the report also noted that Russia is now economically in a better position to withstand the consequences of sanctions than it was in 2014.
The report believes that due to the fragility of the EU's own economy, it is unlikely to impose a large-scale trade embargo on Russia, at least in the short term.
In terms of energy, Europe has limited alternatives other than Russia, the report noted.
The report assumes that in the extreme scenario of a "full lock", in which Russia completely cuts off gas supplies to Europe, European gas prices could climb to an average of 140 euros per megawatt-hour (MWh).
In this scenario, the inflation rate in the euro zone this year may surge by 2.5 percentage points to 6.3% on the basis of Allianz's previous forecast of 3.8%. "Considering the headwinds facing economic growth, a recession is almost a foregone conclusion."
In response to the possibility that the West may exclude Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the report pointed out that this does not mean that cross-border trade between Russia is prohibited, on the contrary, the financial information established by Russia after the Crimea crisis Transmission System (SPFS) can be used as an alternative.
However, financial sanctions would disrupt energy imports, causing pain for Europe itself.
The report said that the consequences of the escalation of the conflict are already visible in financial markets, such as rising natural gas prices in Europe, signs of weakness in the Russian ruble, and uncertainty spreading to other emerging markets.
The report predicts that the subsequent impact of the incident on financial markets will depend mainly on two developments: the scale of US (and NATO) military involvement, and whether such involvement will have a long-term impact on energy commodities.
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