The U.S. stock market put in a resilient performance on Thursday, given the data showing inflation surging to a new 40-year high even before the impact of the recent sanctions on Russia, what appeared to be a pretty dismal result from the Russian-Ukrainian meeting of foreign ministers in Turkey, and a surprisingly hawkish decision by the European Central Bank.

Besides the humanitarian catastrophe, sky-high commodities prices have been the result so far of what has been a two-week invasion. Economists at Goldman Sachs have now cut their forecast for growth for the world’s largest economy in 2022 to 1.75%, from 2% previously and the consensus of 2.75%.

It’s a pretty straightforward call. “Combining our commodity strategists’ forecasts with estimates of pass-through to consumer prices, we estimate that rising gas and food prices will create an effective 0.7 percent point drag on real disposable personal income in 2022 with larger drags for lower-income households whose spending is typically more sensitive to fluctuations in income,” said the note written by Joseph Briggs. “Although households will likely partially offset this income drag by reducing savings, this hit to income should weigh on spending in 2022.”

Besides commodity prices, the Goldman team also noted that consumer sentiment tends to be affected by geopolitical crises, and already gauges from Morning Consult and Ipsos have dropped. The downgrade to Europe’s growth prospects will hit U.S. exports, and a tightening of financial conditions will also weigh on U.S. growth.

The Goldman team said, if anything, they may be too positive on the outlook for the U.S. economy. “Even after these downgrades, we still see risks around our growth forecast as skewed to the downside, particularly if sanctions escalate or if oil prices rise even further, for example, to the $175/barrel price target our commodity strategists see as possible if supply losses reach four million barrels a day. Additionally, we have not assumed any growth hit due to metal shortages since—aside from palladium—only a small share of U.S. commodity demand is met by Russian exports,” said Briggs.

Recession risks, they said, are mounting. While they expect further service-sector reopening and spending from excess savings to keep the U.S. economy growing, they said the chances of a recession next year are between 20% and 35%, or roughly as implied by the slope of the U.S. Treasury yield curve.

It wasn’t that long ago when European stocks were the trendy call for 2022, on the logic that the region would benefit from the NextGenerationEU spending and a later recovery from COVID-19 than the U.S. Investors aren’t sharing that view now, with the largest-ever retreat from European equities on record.

By block head

Block Head is a blockchain journalist.