From headlines to hard data: mapping the uneven impact of geopolitical risk in Europe

28 November 2025

By Martin Bijsterbosch, Matteo Falagiarda and Lucia Žídeková

Geopolitical tensions around the world have increasingly affected European economies and slowed down growth. Armed conflicts and other tensions between states and political actors can disrupt supply chains, heighten uncertainty, weigh on consumer and business sentiment and fuel financial market volatility.^[1]

All of this comes at a cost for our economies, while also affecting the transmission of monetary policy. However, measuring geopolitical risk and its economic consequences is no easy task. This blog post presents a new indicator for mapping country-level geopolitical risk. The indicator is then used to measure the varying ways in which the geopolitical shock stemming from Russia’s February 2022 invasion of Ukraine has affected economies across Europe.

Measuring geopolitical risk

In response to the ongoing geopolitical tensions worldwide, several new tracking tools have been put forward in various studies. One leading contribution, by Caldara and Iacoviello (2022), uses US newspaper sources to map the emergence and evolution of risks both globally and for the major economies. Yet it reflects a fundamentally US-centric perspective on the geopolitical risks affecting these countries.

Meanwhile, other approaches typically either focus only on a subset of the large EU economies or are country-specific. Until recently, no single contribution had offered comprehensive coverage of all of the EU countries based on domestic news sources. Our indicator addresses this blind spot by providing an EU-wide, domestically anchored view of geopolitical risk.

So how do we go about measuring geopolitical risk?

In line with the definition provided by Caldara and Iacoviello (2022), we understand geopolitical risk to mean “the threat, realisation, and escalation of adverse events associated with wars, terrorism, and any tensions among states and political actors that affect the peaceful course of international relations”.^[2]

We also adopt a similar text-based methodology but extend it to capture these developments from a European perspective. To this end we draw on domestic news sources for all EU countries. Specifically, we use the English-language coverage of leading EU newspapers and agencies to detect and track tensions. This yields a more granular and regionally grounded measure of geopolitical risk in Europe.

The indicator is based on a dictionary of keywords and has been constructed using an automated text search. The keywords cover a wide range of geopolitical risk-related terms. The search terms combine references to war, conflict, invasion, terrorism, military buildup and nuclear threat with words expressing tension, threat, risk or crisis. Non-geopolitical references (such as film titles, sporting events or historical anniversaries) have been systematically excluded. Thanks to this design, the indicator is able to capture how the media covers both the outbreak and the escalation of geopolitical events.

Our indicator depicts the monthly volume of articles referencing adverse geopolitical developments as a share of the total number of articles published. It shows how perceived geopolitical risk has varied across countries and over time, closely tracking the major geopolitical events in Europe over the last two decades (Chart 1). For example, before the Ukraine war central and eastern European (CEE) countries generally faced lower geopolitical risk than other EU nations. Since February 2022, however, they have been among the most affected.^[3]

Chart 1

Geopolitical risk indicator

(percentage of articles referencing adverse geopolitical developments relative to the total number of articles published)

The Russian invasion of Ukraine in February 2022 represented a major geopolitical shock – the largest perceived geopolitical shock for at least 20 years. The invasion compounded already high inflationary pressures, dented consumer and business sentiment, increased uncertainty and triggered volatility in financial markets. Internationally, it disrupted trade and financial flows.

Also, it contributed to market fragmentation and put already stressed supply chains under further strain. While the impact of these risks varied across countries, our indicator shows that the perceived risks were greater in regions closer to the conflict (Chart 2, panel a) and in countries with stronger economic and trade ties to Russia before the war (Chart 2, panel b).

CEE countries were particularly affected, in part due to their reliance on energy-intensive production, the high share of food and energy in their household spending, their economic openness, their integration into global supply chains and their pre-war trade and financial links with Russia. Austria, Finland and Sweden also displayed elevated geopolitical risk.

For Finland and Sweden, this was probably due to their proximity to Russia and their limited protection from the conflict before joining NATO. In Austria’s case, it could also stem from the country’s historical neutrality and the absence of a collective defence alliance (it is not a member of NATO).

How does geopolitical risk affect Europe’s economies?

The war in Ukraine and its broader geopolitical ramifications have had significant and heterogeneous effects across European economies. To capture these dynamics, we incorporated the geopolitical risk indicator into macroeconomic models that include both domestic and global economic and financial variables. The results show that geopolitical risk shocks had a substantial impact on real GDP, investment, exports and inflation between 2022 and 2024 (Chart 3). Investment was hit particularly hard, with a drop of around three percentage points in CEE countries. This shows that greater geopolitical uncertainty makes firms more cautious by driving up risk premia and discouraging long-term investment plans.

Geopolitical risks also played a significant role in driving inflation higher between 2022 and 2024. This finding is consistent with the cost-push interpretation of economic shocks.

According to this theory, heightened geopolitical tensions disrupt supply chains and push up production and energy costs. And this contributes to higher prices. At the same time, geopolitical tensions can also lower inflation by weighing on confidence, tightening financial conditions and dampening both domestic and global demand. Although the overall impact of these effects can vary, our findings suggest that the factors pushing prices up outweigh those pulling them down.^[4]

CEE countries have been more affected by geopolitical risks than the euro area overall. Interestingly, there is little difference between CEE countries that form part of the euro area and those that do not, highlighting the entire region’s vulnerability to geopolitical disruptions.

Unlike in the euro area as a whole, geopolitical shocks in CEE countries had a bigger impact on exports than on investment. This is largely due to their strong connections to global trade and supply chains, their reliance on external demand and their pre-war economic ties with Russia. As many of these connections have been disrupted by the war in Ukraine, the export sectors in CEE countries are particularly sensitive to these geopolitical challenges.

Chart 3

Economic impact of the geopolitical shock stemming from the Ukraine war beyond long-term trends

(percentage points)

Tracking geopolitical risk: an economic imperative

Geopolitical shocks, such as the Russian invasion of Ukraine, have had a profound and uneven impact on European economies. Given their geographical proximity to the conflict, their economic openness and their pre-war economic linkages with Russia, CEE countries have proven particularly vulnerable.

Understanding the economic impact of geopolitical shocks is crucial for economic policymakers and central banks. This will enable them to craft targeted and timely responses to mitigate adverse effects and support economic resilience. For Europe, mapping geopolitical risk and tracking its repercussions is no longer a choice. It is an economic imperative.

The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.

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