Global events impact people all over the world. Whether you have family in the conflict zone, are worried about increases in identity-based hate, or have no direct connection at all, the emotional toll of significant conflict is real. Grief is one of the most common responses, as the loss of life and cultural heritage incurred during war and major conflict is difficult for anyone to ignore.
Another common reaction is fear — fear of economic damage, disruption to shipping routes, or even a breakdown in international cooperation. This fear is a reflection of the fact that the world’s economy is interconnected, and that what happens in one region can have an immediate impact on other regions.
For example, the 2022 invasion of Ukraine directly impacted European supply chains by blocking key shipping routes. In Europe, over 70% of imports and exports were shipped by sea in 2023, making the threat of potential disruptions extremely concerning. And, given that many Euro area industries depend on access to critical materials such as semiconductors and rare minerals – textiles, automotive, technology – the impact of geopolitical tensions on their financial well-being would be particularly acute.
Our experimental results show a strong positive association between respondents’ geopolitical concerns and their expected negative financial consequences. In particular, those expressing the highest levels of concern are much more likely to expect a worse overall financial situation for their households than those indicating lower concerns. In a more macroeconomic sense, we find that house price expectations are relatively insensitive to the impact of a three year or longer prolongation of geopolitical conflict, reflecting the resilience of housing markets in most euro area countries.