One of the consequences materialising from the Russia-Ukraine war is that “stagflation” – slow growth and a high unemployment rate accompanied by inflation – is emerging in several countries. This does not pose a direct threat to global financial stability for now, but the deteriorating global economy will damage the financial system through classic channels such as non-performing loans, losses and the “sovereign-bank evil loop” – that is, the deterioration of sovereign credit risk adversely affecting the financial health of its banking sector and vice versa.
What is more worrisome is that financial players cannot count on the monetary policy support they have become accustomed to over the course of the previous decade.
