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The Bank of Spain warns that the closure of trade with Russia would weigh down up to 1.8% on Spanish GDP


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The Bank of Spain has warned this Tuesday that a hypothetical interruption of imports of energy raw materials from Russia could have a significant effect on the Spanish economy, which would have an impact on GDP of between 0.8% and 1.4% and an increase in inflation of between 0.8 and 1.2 points percentages throughout the first year with respect to a scenario without such restrictions.

But, in case of total cessation of trade flows between Russia and the European Union, the impact on Spanish GDP would be greater and would amount to -1.8%. As for inflation, the total impact would be 1.4 points if there were a total closure.

According to the report ‘Economic consequences of a hypothetical trade closure between Russia and the European Union’ published this Tuesday, in the scenario considered most likely for the Bank of Spain, the reduction would be 1.1% of GDP and the increase of inflation of 0.9 percentage points.

“The difficulty in replacing these products in the short term would mean a reduction in the energy supply and a worsening of the current inflationary episode, which would imply, in both ways, a burden on economic activity,” warned the body headed by Pablo Hernández. of Cos in the report.

In any case, the Bank of Spain has underlined that given that dependence on Russian energy is less in Spain than in the rest of the European economies, the effects on the economy would be notably smaller.

In this sense, he pointed out that in the case of other European economies, the impact would be between 1.9% and 3.4% for Germany, 1.2% and 2% for France, and 2.3% and 3.9% for Italy. The impact on the EU as a whole would be between 2.5% and 4.2% of GDP and an increase of between 1.6 and 2.7 points in the inflation rate.

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“These values ​​should be considered as short-term impacts and whose magnitude would be reduced as the substitution capacity of Russian energy imports increases,” the agency pointed out. And it is that the energy raw materials from Russia are the products whose import restriction could have a greater impact on the activity and prices of the European economies.

The intensity of the impact would be heterogeneous among the countries of the European Union (EU) depending on their energy dependence on Russia. For example, around 18% of energy mining products (gas and coal) and 9% of oil products consumed in the EU are imported from Russia, compared to 3% and 2.5 %, respectively, in the case of Spain.

However, if the interruption of imports affected only energy mining (which includes both natural gas and coal), the impact would be greater than in the case of the suspension of imports of petroleum products. Specifically, the approximate proportions within the total effects would be, respectively, 70% and 30%.

Just yesterday, the leaders of the European Union reached an agreement to partially embargo Russian oil. “This immediately covers more than two-thirds of Russia’s oil imports, cutting off a huge source of funding for its war machine,” European Council President Charles Michel explained after the meeting in Brussels.

total cessation

Finally, in the event of a hypothetical total cessation of trade flows between Russia and the European Union, the impact on Spanish GDP would be -1.8%. In other words, it would imply an additional fall of 0.7 points with respect to the central scenario of cessation of energy imports (1.1%).

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This effect would be distributed between the suspension of the rest of imports and that of exports in respective amounts of 0.3 and 0.4 points. As for inflation, the total impact would be 1.4 points, with an additional effect of 0.5 points with respect to the initial scenario, which would be fully explained by the cessation of the rest of the imports, due to the absence of cascade effects in the case of exports that have been discussed above.

In the cases in which the most restrictive assumptions are considered in terms of the substitution capacity of imports and exports, the total impact on the Spanish economy could mean a drop of up to 2.4% in the case of GDP and a increase of 1.7 points in the case of inflation

A qualitatively similar effect is produced in the rest of the EU economies, but, as in the case of the cessation of energy imports, the effect is significantly less in Spain. For example, for the EU as a whole, the additional negative impact on GDP of suspending the rest of imports from Russia would be 1.2 points, compared to 0.3 points in the Spanish case.

This difference would be relatively smaller with regard to exports, given that the heterogeneity by country in the weight of sales to Russia is comparatively smaller than in the case of imports of goods produced in that country. Specifically, the additional impact in terms of GDP due to a cessation of exports would be 0.6 points in the EU as a whole, compared to 0.4 points in Spain.

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