Ukraine War Creates a Dilemma for ECB, Risks FragmentationUkraineWarCreatesaDilemmaforECB,RisksFragmentation

The shock stemming from the conflict in Ukraine, based on slower economic growth and higher inflation in the eurozone, puts the European Central Bank in a difficult situation, PGIM Fixed Income says. High energy prices feeding through to inflation and squeezed incomes will likely create a dilemma among policy makers on how to act, the asset-management firm says. A further challenge relies on the fact that the impact of the conflict inside the eurozone is asymmetric, with countries such as Germany and Italy more exposed to it, PGIM Fixed Income says. "Shocks with an asymmetric regional impact also raise the prospect of euro area fragmentation, with concerns that economies such as Italy may be unable to finance their debt levels," it says.