What could an end to the war in Ukraine mean for Europe?

Investing.com -- Momentum is building toward a ceasefire in Ukraine, but according to UBS analysts, satisfying the demands of both Ukraine and Russia remains a significant challenge, making an imminent agreement unlikely. 

However, the bank said in a note Tuesday that if a lasting deal is brokered, Europe could experience modest economic benefits, including lower energy prices, the easing of sanctions, and improved business and consumer sentiment.

UBS notes that energy prices have remained elevated despite retreating from their post-invasion peak. 

"If a ceasefire emerges, we believe it is reasonable to expect a modest increase in gas flows to Europe," the analysts write. 

However, they add that a major shift is unlikely due to political considerations and infrastructure constraints. 

While lower energy costs could provide some relief for manufacturers and consumers, UBS cautions that "the end consumer price is unlikely to fall dramatically."

Sanctions on Russia may also begin to ease under a ceasefire. UBS analysts predict that the current EU-wide consensus on sanctions will weaken, leading to a gradual reduction in restrictions. 

However, "whether this will eventually result in more trade and cross-border investment between Europe and Russia is uncertain," they add. 

Rebuilding Ukraine will be another key consequence of a ceasefire, with Europe expected to play a leading role, says UBS. 

The World Bank estimates reconstruction costs at $500 billion over the next decade. UBS anticipates that countries such as Poland and Turkey could see economic benefits, though for Europe as a whole, "rebuilding Ukraine will have only a small positive effect."

The bank adds that investor sentiment could also improve. UBS notes that "the Eurozone economy has lagged behind the US economy in the post-COVID era," in part due to weak confidence. A ceasefire could shift perceptions and encourage more spending, investment, and hiring, providing a much-needed boost to growth.

In financial markets, equities and bonds could respond positively. UBS highlights that "a ceasefire could be a positive catalyst for equities and support investor sentiment toward the single currency."

While the timing and terms of a ceasefire remain uncertain, UBS analysts emphasize that Europe stands to gain in multiple areas, albeit modestly. However, geopolitical risks—including potential US tariffs on European goods—may counteract some of these benefits.