Growth in large Asia Pacific economies like China, India, and Indonesia will be less affected as their economies are more domestically oriented, said S&P Global Ratings on Thursday.

However, slower global economic growth and external demand will weigh on economic activity, it added.

“We see a significant risk that the Russia-Ukraine military conflict drags on, exacerbating Europe’s energy crisis, while at the same time interest rates in developed markets may have to rise even more sharply than in our base case to mitigate broadening inflation pressures,” said Jose Perez Gorozpe, S&P Global Ratings Emerging Markets Head of Credit Research.

“This could result in a deeper-than-expected recession in Europe and, to a lesser extent, the US, with a concomitant rise in unemployment from historically low levels,” Gorozpe added.

According to S&P Global Ratings, it has developed a downside scenario taking into account the increasing risks and the potential for materialization, with a roughly one-in-three likelihood of occurring.

In Europe, this downside scenario would see high energy prices and rationing, said the global credit rating agency.

The European Central Bank would be forced to follow the Federal Reserve because of the depreciation of the euro against the US dollar, fueling imported inflation. This will lead to eurozone recession, with the gross domestic product (GDP) contracting by 1.3 per cent in 2023, and Germany suffering the largest impact.

In the US, it would result in GDP contracting by 0.3 per cent in 2023, compared with a shallow recession in the first half of the year in our baseline, with marginal growth of 0.2 per cent for the year, S&P Global Ratings said.

Among emerging markets (EMs), the downside scenario sees Mexico feeling the greatest impact among Latin America’s developing economies, while Poland would be the hardest hit among Europe’s EMs, largely because of its direct exposure to energy supply disruptions.

“Conditions remain fluid, and over recent weeks the UK and Germany have announced hefty support measures that could affect both our baseline and downside assumptions,” the credit rating agency said.