The broad Russian military strike will change the world

<p>Kia ora,</p><p>Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news markets are in a full risk-off mood with equity prices and bond yields lower, and currencies like the USD and JPY up sharply.</p><p>Russia's land-grab of its neighbour is in full hot military mode, unlike its bloodless takeover of Belarus and Kazakhstan in 2021. They have launched a war using justifications straight out of the 18 Century, and one not seen for 70 years. They are moving aggressively to seize Ukraine's key population centers.</p><p>The chance of any international disarmament is right out the window now; countries globally will be prioritising defense spending. War, as it always is, will be inflationary. And China's threats of war against Taiwan will take on a new imperative. Retreats into security blocks are much more probably now with open trade and global supply chains more likely to be unwound. Even if the attack on Ukraine remains limited, the political and security responses will upend five decades of relatively peaceful progress. A turn in the progress against poverty will be negative. Globalisation is likely to be ended.</p><p>China and India are staying on the sidelines of this war, for now at least.</p><p>The war-induced inflationary impulse has seen US Fed officials signaling that rate hikes are still very much on their agenda.</p><p>US GDP growth for Q4-2021 was <a href="https://www.bea.gov/news/2022/gross-domestic-product-fourth-quarter-and-year-2021-second-estimate" target="_blank"><strong>revised higher</strong></a> at a +7% annual rate and up +5.6% for all of 2021 from 2020. Those are 'real' results. In nominal terms, the US economy recorded $24 tln of economic activity, the first time it has exceeded that benchmark, and almost +12% more than for 2021. Improved consumer spending drove the gain. (What is interesting about this data is that in 2