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Good morning, it is a pleasure and an honour to be with you today, albeit virtually. Let me thank Professor Schleiter for the welcome and Professor Ruggeri for this interesting background, and of course Dr Garavoglia for organising this event.
When I first received this invitation, back in December, circumstances were very different. The European economy was on a path of strong growth, supported by the rollout of our unprecedented recovery plan, Next Generation EU - which remains of course a key priority.
I would have much preferred to centre my intervention on the challenges of Europe's post-pandemic economy. Yet, our world has fundamentally, and tragically, changed since then.
Two years since the start of the pandemic, we have been plunged into another crisis, since 24 February.
The focus of today's event has thus had to shift to the incalculable suffering of the Ukrainian people and the consequences for the European Union of Putin's senseless war.
We should make no mistake. This is not just an attack on Ukraine, an independent European sovereign, democratic state. It is an attack on all the values we hold dear – democracy, freedom and the rule of law.
Yuval Noah Harari recently argued that what is at stake in Ukraine is the direction of human history. It is about whether the implausibility of war among superpowers painstakingly built in the aftermath of the Second World War will hold; or whether this signals a return to the law of the jungle and the realism of Thucydides: the notion that “the strong do what they will and the weak suffer what they must”.
[Economic implications]
The European economy entered this crisis on a solid footing, on the back of a strong recovery and an improving pandemic situation.
GDP was back at pre-pandemic levels. Unemployment had reached record lows. Accumulated savings were high. And business and consumer surveys were indicating growing confidence.
There were, of course, a number of challenges: notably rising energy prices and supply chain disruptions, both contributing to mounting inflation.
Still, it seemed these challenges would subside over the course of this year.
On 10 February, I presented our winter economic forecast, which projected 4% growth in 2022 for the EU as a whole.
The war will inevitably have an impact on the European economy and aggravate the challenges we were already facing, as a result of three factors:
Indeed, commodities markets have seen large swings, both for energy and agricultural commodities. Oil and gas prices continue to be very volatile and remain at levels last seen in 2008. The price of wheat and sunflower oil has skyrocketed, as Russia and Ukraine are major grain exporters. These trends raise concerns about food security, particularly in developing countries. Egypt, for example, imports around 85% of its wheat from Russia and Ukraine. Somalia is already suffering from drought.
And this emergency will grow in the coming weeks and months.
Spiralling commodity prices will put further pressure on an already high consumer inflation. In February, inflation in the euro area increased to 5.9% from 5.1% in January, driven by energy - energy inflation was 32% in February - but also food prices. The large increases in energy and unprocessed food prices we are seeing will certainly add further price pressures.
The conflict is also exacerbating existing global supply chain disruptions in terms of both lack of raw materials and price hikes. Explicit embargoes, implicit bans and voluntary withdrawal from trade are affecting prices as well as quantities of traded goods. For example, two of the largest container shipping companies, Maersk and MSC, have suspended their operations with Russia. The decision to close the airspace to Russia will increase the cost of flying cargo from Europe to Asia, potentially making some routes commercially unviable. So we are strongly supporting our sanctions decisions and we have to be honest with our citizens that this strategy that is not without a price.
Several industries in the EU and around the world will face important setbacks, as Russia is an important exporter of a wide range of raw materials. The production of semiconductors, batteries, steel and other goods relies on supplies from Russia.
The budgetary impact of the crisis will also be important: providing economic and material support to Ukraine, assistance to the millions of refugees that have poured into Europe and continued support to the economy to deal with high energy prices are all set to weigh on Member States' budgets.
All in all, while at this stage it is still too early to quantify the precise impact of the war in Ukraine on our economy, it is increasingly clear that the 4% growth we had forecast will have to be revised downwards. And I will present our spring forecast on 16 May....
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