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Investing.com -- A potential Ukraine peace deal could have far-reaching effects on global markets, from boosting Ukraine’s economy to lowering energy prices and supporting emerging markets, according to Bank of America analysts.
While uncertainty remains high, BofA highlights five key areas where a peace deal could make an impact: Ukraine’s economy, energy markets, developed Europe, emerging markets, and broader asset prices.
The bank said that for Ukraine, an end to the war could lead to economic growth exceeding 5%, driven by reconstruction funding.
"Depending on the deal terms, reconstruction needs could be covered partly by foreign or private flows," BofA notes. They add that reduced defense spending would free up resources for investment, further accelerating growth.
BofA believes that one of the biggest spillover effects would be on energy prices.
“A deal could lead oil prices to drop by US$5-10/bbl and push European gas prices below €25/MWh by the summer,” says BofA.
The bank also points out that any renewed gas sales to Europe could use existing infrastructure, including transit pipelines, Nord Stream 2, and Arctic LNG 2 flows.
For developed Europe, the analysts feel lower energy costs could push inflation below 1.5% in 2025-26, with economic growth potentially reaching over 1% in 2025 and 1.5% in 2026.
While Ukraine’s reconstruction costs are significant, BofA calculates that they represent only 2.7% of EU GDP. However, the bank remains sceptical that EU nations will revert to heavy reliance on Russian gas.
Emerging markets, particularly in Eastern Europe, could see significant benefits. The analysts state that lower energy costs would aid Hungary and Türkiye, while Türkiye and Poland could gain from trade normalization and participation in Ukraine’s reconstruction.
BofA suggests that markets may not yet be fully pricing in the potential for a peace deal, given the current focus on tariffs and US economic dominance.