McKinsey just outlined its worst-case scenario for the global economy after Russia’s invasion of Ukraine — and it includes recessions for both the US and Europe

Putin’s invasion of Ukraine has rocked the world, while countries around the world impose sanctions on Russia, Ukrainians are thrust into a new reality of war, and the world is missing out on two major food suppliers.

Now, management consulting firm McKinsey has released a report detailing how the ongoing conflict could affect economies around the world.

Both Russia and Ukraine are already facing difficult economic circumstances. With the sanctions taking a toll on the Russian economy, it could slip into recession as early as April. The International Monetary Fund said Ukraine’s economy could potentially shrink by a third this year amid the invasion. For ordinary Russians, many of whom may not support the war, the invasion has disrupted the country’s previously strong economic recovery from the pandemic.

The prospects for the global economy are not good either. McKinsey analysts consider several scenarios. For one, the situation is “serious” and “escalating” as it gets longer and bigger; Sanctions mount, the refugee crisis deepens and markets are disrupted as countries adopt a moderate policy response as they exit pandemic stimulus packages.

In this scenario, the US and the Eurozone, which consists of European countries that use the euro as their currency, could even slip into recession as refugees keep pouring in, food and gas prices keep rising, and headline inflation keeps growing.

Prices in the US could continue to rise as economic growth slows

While the US economic recovery from the pandemic appears to be progressing, inflation is still high. The prices of just about everything, especially the things Americans need most like groceries and gas, are rising.

The Fed has attempted to cool this inflation by raising rates for the first time during the pandemic and will most likely raise rates throughout the year, which would make borrowing more expensive and therefore reduce demand for loans and credit cards. Although, as Insider’s Ben Winck reports, it’s still unclear how often interest rates will rise and what impact they will have on the broader economy.

“It appears that the invasion of Ukraine will only slow the pace of rate hikes, but will not change the course of politics in the United States,” says McKinsey. While rising interest rates could dampen spending and ease inflation, uncertainty about the invasion could mean the Fed is tackling this tool on a slower schedule.

When “severe” and “escalating” disruptions occur, oil prices remain high and confidence is “shaken”, causing everyone to spend less. That would mean a recession for the US.

In fact, there could be “strong potential” for a recession in the US as inflation remains high in 2022 and 2023, according to asset management firm TCW. It’s perhaps just a throwback to the economy of the 1970s, when stagflation slowed growth, coupled with high prices, that was the name of the game.

A refugee crisis could fuel Europe’s economic woes

The “refugee crisis” in Central Europe could worsen as the war progresses. The UN has already said that the refugee crisis in Ukraine has exceeded its “worst-case scenario” as some 10 million Ukrainians are already fleeing their homes.

Under the severe scenario McKinsey writes about, gas prices in Europe would more than double and inflation would rise by over 7%.

For the eurozone, this means a recession in 2022-2023, with inflation finally easing in mid-2023 and jobs and growth not fully recovering until 2024. Europe has already taken a major financial hit from the pandemic and is experiencing a “double dip” recession, according to the `. After the first shock from the early pandemic in spring 2020, the eurozone entered its second recession in early 2021.