JPMorgan CEO Jamie Dimon: Russia-Ukraine war, inflation will have ‘unprecedented’ economic impact
Russia’s invasion of Ukraine and penalizing sanctions against Moscow have roiled financial markets and wreaked havoc on global supply chains. And JPMorgan CEO Jamie Dimon thinks the worst is yet to come.
Dimon warned in his closely-read annual letter to shareholders on Monday that Russia’s ongoing invasion of Ukraine is expected to meaningfully slow the U.S. and global economy.
JPMorgan economists predict consequences from the war and resulting sanctions against Russia will reduce the country’s gross domestic product (GDP) by as much as 12.5% by the middle of this year. The potential spillover effects have also led the bank to cut its forecast for the rest of Europe, with their GDP projections now at an annual rate of 2% in 2022, compared to the pace of 4.5% economists had expected just six weeks ago.
Meanwhile, JPMorgan estimates the U.S. economy will advance roughly 2.5%, compared to the institution’s initial forecast of 3% — but Dimon cautioned in the letter that forecasts were based upon a “fairly static view” of the war.
“We do not know what its outcome ultimately will be, but the hostilities in Ukraine and the sanctions on Russia are already having a substantial economic impact,” said Dimon, adding that “many more” sanctions could be added and spur further unpredictability.
“Along with the unpredictability of war itself and the uncertainty surrounding global commodity supply chains, this makes for a potentially explosive situation,” he added.
Moreover, Dimon also warned the bank itself is positioned to lose as much as $1 billion over time in the first-ever comment JPMorgan has made over its potential losses from the war. Although the major bank said it is not worried about its direct exposure to Russia, the institution is concerned about the “secondary and collateral effects” the crisis and sanctions pose on so many companies and countries.
Dimon did not elaborate on an exact time frame or how the estimate was calculated, but a spokesperson for JPMorgan told Yahoo Finance the $1 billion loss could be related to potential distressed assets impacted by the war.
The bank earned $48.3 billion in profit on revenue of $125.3 billion last year.
“America must be ready for the possibility of an extended war in Ukraine with unpredictable outcomes,” he wrote. “We should prepare for the worst and hope for the best.”
The conflict in Eastern Europe is only one of several headwinds clouding the global economic picture, according to Dimon. The “confluence” of the war, the stimulus-fueled recovery from the COVID-19 pandemic, central banks quickly moving ahead to raise interest rates and the reversal of quantitative easing “may dramatically increase the risks ahead,” he said.
“We are facing challenges at every turn: a pandemic, unprecedented government actions, a strong recovery after a sharp and deep global recession, a highly polarized U.S. election, mounting inflation, a war in Ukraine and dramatic economic sanctions against Russia,” Dimon wrote. “While all this turmoil has serious ramifications on our company, its effect on the world — with the extreme suffering of the Ukrainian people and the potential restructuring of the global order — is far more important.”
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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