Inflation in the euro area is now expected to climb above 6% in 2022, up 2.5 percentage points from estimates a few months ago. ![]() As fighting damages production facilities, the prices of many core products will continue to rise, particularly those that are difficult to substitute, like wheat, fertilisers and gas. Ukraine and Russia are important suppliers of energy and agricultural products. Russia, however, is such an important supplier to international oil and gas markets that any trade disruption – sanctions or otherwise – translates into higher prices. Countries that have taken steps to develop renewable energy, biofuels and nuclear energy are obviously less dependent on Russian supplies. These countries also depend more on oil and gas to produce energy. For these countries, more than half of gas and oil imports from outside the European Union come from Russia. Ten EU countries depend heavily on Russia for oil and gas imports (see chart below). Production in some countries, like Lithuania, Greece and Croatia, remains relatively energy-intensive, while Luxembourg’s output relies very little on energy. But again, energy dependence varies across European regions. Exports to the Ukraine, Russia and Belarus represent more than 5% of GDP for Latvia and Lithuania.Įurope’s dependence on fossil fuel exports has also declined over the years, as production became less energy-intensive and economies more service- or technology-orientated. But some countries in Eastern and Central Europe, like Estonia and Lithuania, are much more affected. Exports to those countries accounted for only 11% of gross domestic product (GDP) in 2019. Firms located in countries close to Ukraine, such as Poland, Latvia and Lithuania, are also hard hit, as are firms in Greece, Croatia and Spain.ĮU firms as a whole are only minimally exposed to the disruption in exports to Ukraine, Russia and Belarus. Firms in sectors like transport, chemicals and pharmaceuticals, and food and agriculture suffer the most. The share of firms that risk defaulting on their debt also surges from 10% to 17% in the same period. Under our model, the share of EU firms losing money rises from the normal average of 8% to 15% in the year after the start of the invasion. Exports to Ukraine, Russia and Belarus are completely suspended.Firms absorbed those higher costs by reducing their profit, instead of increasing prices for their own products.Firms’ energy bills doubled for at least one year.We created a model with several assumptions: The European Investment Bank Economics Department analysed the war’s impact on the profitability of EU firms. Now these firms are contending with higher energy prices, reduced trade and potentially higher funding costs as banks try to avoid risk. Those firms were slowly weaning themselves off government support when the Ukraine war hit. ![]() The COVID-19 crisis weakened EU firms, particularly small ones.
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