A cessation of Russian energy imports would weigh down up to 1.4% on Spanish GDP and raise prices by 1.2%

The effect of a hypothetical total closure of trade between Russia and the EU with substitution difficulty would be 2.4%, according to the Bank of Spain

MADRID, 31 May. (EUROPA PRESS) -

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 percentage points throughout the first year compared to a scenario without such restrictions.

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 substituting 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.

"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 petroleum 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," explained European Council President Charles Michel after the meeting in Brussels.

In general terms, the most affected sectors would be those that are more intensive in energy use, such as transport, the basic metals industry or the chemical industry, while the effect would be more limited for service sectors, such as real estate, whose activity would hardly be affected.

However, the contraction of added value in each of the sectors is due not only to the direct impact due to higher energy prices, but also to the propagation of these direct effects through the production chains.

For this reason, the increase in costs in some sectors with a central role in the production chains, such as, for example, transport or the chemical industry, will also affect the rest of the branches, regardless of the energy intensity of the latter.

In addition, the propagation of the effects through the production chains does not occur exclusively between the sectors of the same country: the disturbances suffered by the European suppliers of the Spanish industries will also be felt on the GDP and the level of prices in Spain.

For example, the Bank of Spain points out that some sectors of the Spanish economy, such as vehicle manufacturing or pharmaceutical production, are highly dependent on their customers and suppliers located in other EU countries. Thus, these sectors would be indirectly exposed to production limitations in the rest of the countries due to energy restrictions.

Specifically, around half of the drop in GDP estimated for Spain as a result of the cessation of energy imports from Russia would be due to the impact through trade flows with the rest of the EU countries

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%).

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. Regarding 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 imports, due to the absence of effects cascade in the case of exports 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.