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Goldman Sachs Asset Management Statement on the Russia-Ukraine War. Read it here .


Fixed Income Outlook 2Q 2022

Overcoming Challenges

Geopolitical risks are high, growth is normalizing and a sustained inflation impulse due to commodity and supply chain disruptions is leading central banks to press ahead with policy unwind as we anticipated entering 2022. Disruptions to commodity supply will likely dominate the economic and financial market implications of the Russia-Ukraine war. The economic costs, however, are unlikely to be evenly distributed. In addition, unlike the 1970s, the current shock involves all commodities—energy, food and metals—and will likely affect Europe more than the US.

Looking at the big picture, replacing the world’s second-largest commodity producer will take time and renewed fiscal spending could prolong inflation pressures. Navigating the investing landscape during a war in Europe and an ongoing pandemic underscores the importance of both humility and investment discipline.

Highlights of the report are below, and we encourage you to download the full report for more detailed insights.

Fixed Income Perspectives

Sam Finkelstein

Chief Investment Officer Fixed Income and Liquidity Solutions, Goldman Sachs Asset Management

Sam Finkelstein


“With a hawkish reassessment of central bank policy and the initial market response to war behind us, there is potential for market volatility to moderate over the coming quarter. As a result, the accumulation of risk premiums in certain segments of the fixed income market appear attractive. This includes investment grade corporate credit, where healthy balance sheets should provide an anchor despite high inflation and geopolitical uncertainty.”

Whitney Watson

Global Head of Fixed Income Portfolio Management, Construction & Risk, Goldman Sachs Asset Management 

Whitney Watson


"The new geopolitical and energy market reality created by the Russia-Ukraine conflict underscores the importance of both energy security and energy transition. Importantly, the onset of a war in Europe and the associated energy inflation implications continue to amplify the importance of an environmental, social and governance (ESG) lens for managing left-tail downside investment risks, as well as a well-balanced approach to fixed income asset allocation."

Macro at a Glance

Persistent inflation, growing growth headwinds

Our expectation for a normalization in growth due to a fading fiscal impulse, tighter financial conditions and reduced reopening effects remains intact. However, the inflation squeeze on household disposable incomes alongside weaker sentiment owing to the conflict presents downside risks. Russia’s invasion of Ukraine presents upside risks to headline inflation through higher commodity prices, particularly for energy and food. The conflict also accentuates concerns around unanchored inflation expectations and an upward wage-price spiral which can lift core inflation.

US employment cost index, year-over-year


Source: Macrobond, Goldman Sachs Asset Management. As of Q4 2021.

Policy Picture

Hawkish central banks, active fiscal policy

The breadth and persistence of price pressures prompted a hawkish reassessment for monetary policy early in the first quarter. Looking ahead, central bank tolerance to look through the additional supply-side shock is limited. As a result, the policy unwind we anticipated entering 2022 is underway, though there are differences in how central banks will respond.


In contrast to the pandemic, fiscal policy will be key to stabilizing growth in response to the war in Ukraine given central banks are focused on stabilizing inflation. But as a result of the pandemic, public sector indebtedness is already high. Across emerging markets (EM), where fiscal capacity is limited, we expect support from multilateral institutions, with the International Monetary Fund playing a more active role than it did during the pandemic.

Central bank asset purchases


Source: Macrobond, Goldman Sachs Asset Management, As of March 7, 2022. Incorporates forecasts from March 2022. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of the downloaded presentation.

What to Watch

Financial conditions and cyclical components of the economy

Policy tightening tends to take time to percolate through an economy. However, the current normalization process is unique in that it is occurring against a backdrop of a war in Europe, a cost-of-living crisis and continued virus spread. As a result, we are closing monitoring financial conditions as well as housing and labor markets.

Growth Impact of Changes in Financial conditions on annual growth


Source: Macrobond, Goldman Sachs Asset Management. As of March 17, 2022.

Sustainability Spotlight

Energy Transition:  The Russia-Ukraine conflict underscores the importance of the energy transition, particularly in Europe which generates 25% of its energy from natural gas and depends on Russia for around one third of its natural gas imports. In the near term, the ability of Europe to substitute its energy sources is constrained by existing infrastructure. Over the medium to long term, we think the war will accelerate rather than delay the energy transition. Indeed, major economies have reinforced renewable energy commitments, with the REpowerEU plan outlining actions to reduce dependence on Russian gas imports and fast-track the rollout of renewables, including green hydrogen which is identified as a critical technology to diversify away from natural gas.


Elements of Energy Inflation: As highlighted by the European Central Bank (ECB), we are faced with a trifecta of energy inflation: “climateflation” (related to severe weather events), “fossilflation” (the legacy cost of depending on fossil fuels as we see today) and “greenflation” (the cost of adapting every economic activity to be climate friendly). In the near term, we think European governments may enact further fiscal measures to shelter consumers from high energy prices. This supports growth but also presents additional upside inflation risks.


Energy Security: The new geopolitical and energy reality created by the war has also sharpened focus on energy security. As the energy transition progresses, energy trade patterns and, in turn, geopolitical risks will be dominated by the critical minerals used in clean energy technologies rather than by fossil fuels. Extraction and processing for many minerals is concentrated in a smaller number of countries than for oil and gas, presenting new geopolitical energy risks.

Related Insights

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    In this weekly insight, we bring the global economy and fixed income markets to you.  Macro at a Glance covers the latest developments in growth, inflation, and labor markets, while Policy Picture and Central Bank Snapshot details our outlook for monetary and fiscal policies. Fixed Income Navigator summarizes how our view of the world and financial markets informs and impacts our investment views.

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    The Russia-Ukraine war—and the resulting humanitarian crisis—is deeply upsetting on a human level. It also raises serious questions for investors trying to gauge its long-term impact on the global economy and financial markets. Simply put, every crisis is different and there is no standard playbook that investors can reach for. For long-term investors, we believe it’s important to stay invested and stay active.

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Date of first use: March 28, 2022.   273990-OTU-1583638

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