Australia's largest business bank has downgraded its growth forecasts for the global economy amid fears of rising tension between Russian and the west.
National Australia Bank on Thursday bumped down global growth forecasts by half a percentage point amid fears Russia is heading for a deep and severe recession due to sanctions imposed on the economy following its decision to invade Ukraine.
For 2022, NAB now expects the global growth will rise 3.5 per cent instead of its originally anticipated 4.2 per cent rise.
Growth forecasts for 2023 have been downgraded from 3.6 per cent to 3.5 per cent.
NAB senior economists Gerard Burg and Tony Kelly said the substantial cut is being fuelled by a likely severe recession in Russia and sanctions impacting commodities and equity markets.
He noted the economic damage will mostly impact the Eurozone, UK and Japan.
"The main contributor to this downturn is Russia, which is likely to suffer a deep recession as a consequence of sanctions," they said in an update released on Thursday.
"In addition, we have lowered our growth forecasts for the Eurozone, UK and Japan, and, to a lesser extent, for India, China and the US, largely reflecting the impact of higher energy prices."
NAB also flagged the duration of the conflict is a major uncertainty driving the rise in energy prices and a dip in investment sentiment globally.
"The duration of the conflict, and the resulting impact on energy prices, is highly uncertain, however it is clear that energy prices will remain elevated in the near term," Mr Burg said.
"More generally, the conflict could further impact already disrupted global supply chains."
The major bank's dimming of its growth outlook is a day after the Reserve Bank governor Philip Lowe warned the Ukraine crisis would become the largest risk to the Australian economy in the coming year.
NAB did note COVID-19 still presents a large risk to the global economy, particularly in developing countries where vaccine protection is lower.
The United States has already imposed sanctions on Russian oil imports, however European nations and Australia are yet to follow.
This is partly because Russia's gas exports comprise of 40 per cent of the European Union's total energy market.
Both economists warn constraints on Russian exports would place upward pressure on global inflation levels.
"Constraints on Russian exports will add additional inflationary pressure to the global economy," they said.
"While energy prices are stripped away from the core consumer price measures that most inflation targeting central banks monitor, higher energy prices will flow through production costs and in the distribution of goods and services."
Sign up for our newsletter to stay up to date.