Economic analysis

Impact of Russia-Ukraine war

Kenneth Kim

Kenneth Kim

Senior Economist, KPMG US

+1 212-954-6144

Tim Mahedy

Tim Mahedy

Senior Director, Office of the Chief Economist, KPMG LLP

+1 415-963-5103

The economic impact of the Russian invasion of Ukraine is being felt around the world as sanctions and export controls take hold. In this bulletin we assess the impacts on the U.S. economy and various industries. Here we look at the impact on inflation, specific sectors, trade, and global commodities. The KPMG economics team will continue to monitor this situation and provide insights to help clients manage through this period.

Inflationary pressures to intensify but the U.S. economy is on strong footing

  • Russia is not a major U.S. trading partner. The direct trade link between the U.S. and Russia represents just 0.6 percent of total U.S. trade. Russia ranks as the 28th largest trading partner. In dollar value, it ranks below both Chile and Colombia.1 This suggests that while disruptive to various commodity markets, the direct effect to U.S. economic activity is likely to be moderate.
  • The biggest impact for U.S. businesses will likely be higher near-term prices for inputs such as oil and wheat, but we do not anticipate a significant impact on the supply of most goods. Rising global commodity prices and input costs are expected to accelerate year-over-year headline CPI inflation to a rate of 8 percent over the next few months. Our baseline scenario is that inflation will end the year at 4.9 percent rather than the 2 percent we forecast last December.
  • We also modeled an alternative higher inflation scenario based on persistent geopolitical tensions, elevated house price growth, and continued significant supply chain disruptions. In that scenario we would expect inflation to end the year at 8.2 percent. While we expect inflationary pressures to ease over the course of 2022, commodity market volatility, major trading partners such as China seeing a resurgence of COVID-19, and the ongoing war in Ukraine have made our upside inflation scenario more likely.

Rising commodity prices create upward inflation pressures

Consumer Price Index (CPI), Year-over-Year % Change

Source: KPMG Economics, Bureau of Labor Statistics, Haver Analytics
  • Higher prices are likely to weigh on consumer demand, particularly for energy and food-related products. However, the U.S. labor market continues to gain strength, adding 1.2 million jobs in the first two months of the year alone. In contrast, the U.S. economy added 2 million jobs in all of 2019. Additionally, wage growth in many sectors has been strong over the last 12 months, and the national savings rate has come down to pre-pandemic levels, suggesting that consumers are spending their increased compensation.
  • The surge in inflation will erode real wages some, and while we’ve lowered our forecast for economic growth in 2022 from 4.1 percent to 3.1 percent, we anticipate that the strength of the labor market will dampen the blow and ultimately support solid consumer spending in 2022.
  • The FOMC increased the federal funds rate by a quarter of a percentage point at their mid-March meeting. In the press conference following the decision, Fed Chair Jerome Powell noted that the impact to the U.S. economy from the war in Ukraine is uncertain, but policymakers are monitoring developments closely. He also stated that policymakers feel the economy is ready for both additional rate increases and a reduction in the central bank’s balance sheet. In the Summary of Economic Projections that was released with the decision, the median forecast for the end-of-year federal funds rates was nearly 2.0%. We therefore expect a rate increase at each of the remaining six meetings this year, which would put the upper bound of the federal funds rate at 2.0% at the end of 2022.
  • As our forecast table at the end of this document highlights, we expect solid consumer spending and business investment to drive economic activity this year. The war in Ukraine will foster additional inflationary pressures, and slightly slow consumption, but the tailwinds from the strong labor market and potential movement past the pandemic should keep growth above rates we saw at the end of the last expansion. Looking further out, we expect growth to moderate back down to 2.1 percent in 2023 and 2.8 percent in 2024 as the Fed continues to raise rates, easing inflationary pressures down towards the Fed’s 2.0 inflation target.

The impact across sectors is likely to be broad, but uneven

  • The heatmap below explores the exposure of each sector to the direct channels by which the conflict is expected to impact the U.S. economy. The manufacturing sector is particularly exposed to fluctuations in commodity prices and tied to the global economy, exporting 41 percent of overall GDP contributions. Agriculture, construction, mining, and some professional services are also expected to be acutely impacted.
  • Even in the most impacted sectors, the effects are likely to be less severe than in other countries as the U.S. economy has far fewer direct links to the Russian and Ukrainian economies than in many European, African, and Middle Eastern countries.
  • The numbers in parentheses in the first column of the heatmap aggregates the share of a given sector’s input exposure from the three commodity markets we anticipate will be most impacted—metals, petroleum products, and grains. The manufacturing and utilities sectors are most exposed to recent commodity price spikes, but even in these sectors the share of production directly impacted tops out at roughly 25 percent. Not all commodity price shocks will have the same duration, and the impact to each sector will be defined by industry-specific production factors, but the relatively low share of these commodities in production suggests that the recent surge in prices will dampen production in the most exposed sectors, but not completely derail recent economic momentum.

Exposure to Russia-Ukraine war, by Industry, ranked by composite score

Industry (share of input exposure) Grain shortages and price risk Oil, gas, and petroleum risk Metal shortages and price risk Global trade exposure Interest rate risk Composite score
Manufacturing (24.4%) orange-bullet-do-not-use.png red-bullet-do-not-use.png red-bullet-do-not-use.png red-bullet-do-not-use.png orange-bullet-do-not-use.png red-bullet-do-not-use.png
Agriculture, Forestry, Fishing, and Hunting (10.8%) red-bullet-do-not-use.png orange-bullet-do-not-use.png yellow-bullet-do-not-use.png red-bullet-do-not-use.png orange-bullet-do-not-use.png red-bullet-do-not-use.png
Mining (2.0%) white-bullet-do-not-use.png orange-bullet-do-not-use.png orange-bullet-do-not-use.png red-bullet-do-not-use.png orange-bullet-do-not-use.png red-bullet-do-not-use.png
Construction (22.9%) white-bullet-do-not-use.png red-bullet-do-not-use.png red-bullet-do-not-use.png white-bullet-do-not-use.png red-bullet-do-not-use.png red-bullet-do-not-use.png
Professional, Scientific, and Technical Services (1.5%) red-bullet-do-not-use.png white-bullet-do-not-use.png orange-bullet-do-not-use.png red-bullet-do-not-use.png yellow-bullet-do-not-use.png red-bullet-do-not-use.png
Transportation and Warehousing (8.0%) white-bullet-do-not-use.png red-bullet-do-not-use.png orange-bullet-do-not-use.png orange-bullet-do-not-use.png yellow-bullet-do-not-use.png orange-bullet-do-not-use.png
Management of Companies and Enterprises (1.2%) orange-bullet-do-not-use.png yellow-bullet-do-not-use.png white-bullet-do-not-use.png yellow-bullet-do-not-use.png red-bullet-do-not-use.png orange-bullet-do-not-use.png
Administrative and Support and Waste Management and Remediation Services (3.2%) white-bullet-do-not-use.png orange-bullet-do-not-use.png orange-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png orange-bullet-do-not-use.png
Utilities (25.5%) white-bullet-do-not-use.png red-bullet-do-not-use.png white-bullet-do-not-use.png orange-bullet-do-not-use.png orange-bullet-do-not-use.png orange-bullet-do-not-use.png
Real Estate, Rental, Leasing, and Housing (1.6%) white-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png orange-bullet-do-not-use.png red-bullet-do-not-use.png orange-bullet-do-not-use.png
Public Administration, Federal, State, and Local Governments (11.1%) white-bullet-do-not-use.png red-bullet-do-not-use.png red-bullet-do-not-use.png white-bullet-do-not-use.png yellow-bullet-do-not-use.png orange-bullet-do-not-use.png
Information (2.5%) white-bullet-do-not-use.png white-bullet-do-not-use.png red-bullet-do-not-use.png orange-bullet-do-not-use.png orange-bullet-do-not-use.png orange-bullet-do-not-use.png
Other Services (except Public Administration) (2.6%) white-bullet-do-not-use.png orange-bullet-do-not-use.png red-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png orange-bullet-do-not-use.png
Wholesale Trade (1.5%) red-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png white-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png
Accommodation and Food Services (2.2%) orange-bullet-do-not-use.png yellow-bullet-do-not-use.png orange-bullet-do-not-use.png white-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png
Retail Trade (1.3%) red-bullet-do-not-use.png white-bullet-do-not-use.png yellow-bullet-do-not-use.png white-bullet-do-not-use.png yellow-bullet-do-not-use.png white-bullet-do-not-use.png
Arts, Entertainment,and Recreation (1.8%) white-bullet-do-not-use.png orange-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png white-bullet-do-not-use.png
Educational Services (1.2%) red-bullet-do-not-use.png white-bullet-do-not-use.png white-bullet-do-not-use.png orange-bullet-do-not-use.png yellow-bullet-do-not-use.png white-bullet-do-not-use.png
Finance and Insurance (1.0%) white-bullet-do-not-use.png yellow-bullet-do-not-use.png white-bullet-do-not-use.png red-bullet-do-not-use.png green-bullet-do-not-use.png white-bullet-do-not-use.png
Health Care and Social Assistance (0.8%) white-bullet-do-not-use.png white-bullet-do-not-use.png white-bullet-do-not-use.png yellow-bullet-do-not-use.png yellow-bullet-do-not-use.png white-bullet-do-not-use.png
red-bullet-do-not-use.png High vulnerability       orange-bullet-do-not-use.png Vulnerable       yellow-bullet-do-not-use.png Low vulnerability       white-bullet-do-not-use.png Little to no effect       green-bullet-do-not-use.png Benefit

Note: The colors in the table correspond to the industry's relative exposure to the key economic channel when compared to other industries. Our methodology relies heavily on input costs, however, we have factored in benefits in certain cases. Share of input exposure is the sum of the share of input costs that are from wheat, oil and gas, and metals. 

Manufacturing includes food and beverage manufacturing and medical device manufacturing. 

Sources: KPMG Economics, Bureau of Economic Analysis (2020). 

Trade: Sanctions and export controls might raise regulatory costs, but with limited economic impact

  • Limits on tech exports will likely only minimally impact the U.S. tech sector. Export sanctions target technology goods that are destined for end use by Russia’s defense, aviation, and maritime sectors, as well as goods “critical to a diversified economy.” The U.S. will also impose restrictions on foreign-produced technologies that use software, technology, or equipment from the U.S. The sanctions are not expected to significantly hamper the outlook for the U.S. tech sector. U.S. exports of computer and electronic products to Russia comprised only 0.3% of the sector’s economic activity in 2020.
  • Russia’s expulsion from SWIFT may have a limited systemic impact to domestic financial markets but could affect U.S. firms. An increasing number of countries have announced that they would expel select Russian banks from the SWIFT money transfer system. The implications for the Russian financial system are significant, but the impact to the U.S. banking system is likely to be minimal. Still, U.S. banks may face additional compliance costs—it will become more important for banks to verify participants in international transactions and perform additional due diligence on many transfers.
  • A ban on Russian petroleum imports is unlikely to materially affect the U.S. energy supply as U.S. imports of these products have been declining since the late 2000’s due to the increase in domestic energy production that started in the 1990s and has made the U.S. much less reliant on energy imports. Imports from Russia of oil and gas comprise less than half a percent of total U.S. demand for petroleum products.2
  • The Russian economy will likely be significantly affected by the war and subsequent rounds of sanctions. The impact to the Russian economy following the annexation of Crimea was long lasting as it did not return to its 2014 level of activity until 2017.3 Military engagement is much deeper this time around, and the level of sanctions is more significant. This suggests that the Russian economy could be dealing with the war’s impact for years.

Commodity markets will be significantly impacted, and effects will be more severe outside U.S.

  • Global energy prices could remain high in the near term. Prices started rising before the invasion in anticipation of an increase in tensions between the two countries. The U.S. spot price for crude broke $100 for the first time in seven years on February 24, 2022 and reached almost $125 on March 8. However, futures markets point to crude U.S. prices declining over the remainder of 2022, with the December contract estimated to trade at around $95.4 This indicates that financial markets anticipate that the war will impact energy prices only temporarily.
  • In an effort to offset rising oil prices, a group of countries agreed to release 60 million barrels of crude oil from their combined reserves on March 1, with the U.S. contributing half of the amount or 30 million barrels from the Strategic Petroleum Reserve. This comes on top of 60 million released in November, and accounts for only a couple of days of production, highlighting the steep hurdle faced by policymakers in offsetting the recent spike in oil prices.
  • Russia and Ukraine account for around 29 percent of global wheat exports,5 which points to significant near-term increases in the price of wheat and related products. While the U.S. is a net exporter of many food products, it is not immune from the global price spike. U.S. spot wheat prices surged in the middle of February as geopolitical tensions mounted and have recently reached a level not seen since 2008. Countries in Africa, Europe, and the Middle East rely on wheat imports from Russia and Ukraine and could face significant food shortages.
  • The war is likely to exacerbate global supply chain disruptions. In our recent chartbook, we noted that global supply chain disruptions are likely to persist in some form throughout 2022. The Russian invasion of Ukraine, and subsequent rounds of sanctions, will likely add disruptions to an already strained global trade network. The impact from these additional disruptions is hard to quantify and will depend on the length and scale of the war, but it will at the very least impact supply chains through the first half of the year.
Major Economic Indicators
  2021A 2022F 2023F 2024F
GDP and related (annual pct. chg from preceding period)
Real GDP  5.7 3.1 2.1 2.8
-Personal consumption expenditures 7.9 2.7 1.8 3.5
-Business Investment 7.4 5.9 2.4 3.2
-Residential Investment 9.1 -1.8 -5.4 1.0
-Exports 4.6 7.2 5.1 4.5
-Imports 14.0 7.2 -0.4 4.3
-Government  0.5 0.0 1.1 1.0
Real disposable personal income 2.2 -4.8 3.1 4.4
Final sales to domestic purchasers 6.6 2.4 1.4 2.9
Labor market (annual avg., percent)
Unemployment rate 5.4 3.6 4.1 4.3
Prices (annual pct. chg from preceding period)
CPI 4.7 6.2 3.7 2.0
CPI excluding food & energy 3.6 5.2 3.5 2.4
PCE    3.9 5.4 2.8 1.9
PCE excluding food & energy 3.3 4.8 3.2 2.2
Interest Rates (annual avg., percent)
Federal funds rate 0.08 0.81 2.44 2.59
3-month T-bill yield 0.04 0.76 2.22 2.37
5-year T-note yield 0.86 1.94 2.34 2.64
10-year T-note yield 1.44 2.19 2.71 2.87
Baa corporate bond yield 3.45 4.32 4.76 4.90
30-year mortgage rate  2.96 4.00 4.49 4.63
A = Actual, F = Forecast

Note: Forecasts are inherently time sensitive and projections are dated as of March 17, 2022.
Source: KPMG Economics, BEA, BLS, Federal Reserve, Haver Analytics, Moody’s


  1. Source: IMF Direction of Trade Statistics.
  2. Source: U.S. Energy Information Administration (EIA) (2021)
  3. Source: Federal State Statistics Service. Russian Federation
  4. Source: Bloomberg Commodity Futures Table
  5. Source: U.S. Senate Committee on Agriculture, Nutrition, and Forestry. Letter from John Boozman, Ranking Member, to Secretary Tom Vilsack, U.S. Department of Agriculture. Page 1, Footnote 2. “USDA data reveals that during the most recent crop year….29% of the global wheat trade originates from Ukraine and Russia”