The global economy is entering something different from a recession, according to David Roche, President of the firm Independent Strategy – it's entering a “war-cession” due to Russia's invasion of Ukraine.
In addition to rising inflation, rising interest rates, and supply chain disruption, Russia's aggression has created a perfect storm of economic disaster, Roche told CNBC's Squawk Box. In a typical recession, he said, output, demand, and inflation all go down. But in a “war-cession,” or a war-related recession, the output is falling just as cost, inflation, and demand rise. Roche believes this confluence of factors will be too much for stock markets to overcome, and he believes that inflation will not fall off as economic growth decelerates, as would be the case in a normal recession. He does not think inflation policies will be able to evolve at a rapid enough pace.
"You're seeing that in the mismatch in the labor market, you're seeing that in the price of commodities," Roche told CNBC, "So you're faced with a very strange situation where central banks have to choose between their inflation target and growth."
The other main issue that factors into a “war-cession” are sanctions. European sanctions have continued to increase in light of Russian war crimes against Ukrainian civilians, the most noteworthy being a complete embargo on Russian coal imports. As a result of these continued sanctions, Roche said, a recession will emerge in Europe, causing ripples in the global economy. This phenomenon will cause a "total energy blockade" as all sides are stifled. Output and performance are suffering, Roche went on, and though they will return to some sort of equilibrium, it will be a more complicated and more extended adjustment period than the equity market may think.
Roche added that the West's only option to prevent this “war-cession” is to support a regime change in Russia. He noted that reducing sanctions, decreasing inflation, and reducing costs can only happen if Putin withdraws from Ukraine, which Roche said seems unfeasible.