From the European and Spanish standpoint, this represents a major negative shock to our international purchasing power. In other words, a relative impoverishment has taken place, on top of the price rises in some of these commodities – particularly energy commodities – that had already been observed before the invasion. In addition to a possible decline in the production of some of these goods as a direct consequence of the fighting, there could also be deliberate supply cuts, which would clearly have an even greater impact on prices and economic activity. Against this backdrop, Europe has formally announced its intention to reduce its energy dependence on Russia, but clearly this is not something that can be achieved in the short term. ii. Trade. In addition to the impact from commodities prices, the conflict will also disrupt trade in all other goods and services, not only as a result of the economic sanctions but also because of the expected deterioration in the Russian and Ukrainian economies. In this respect, Europe’s direct trade exposure to Russia is relatively low, being larger in the case of the central and eastern European economies and smaller in the others, including Spain.2 Nevertheless, the indirect effects may also be considerable. The complexity of global supply chains means that the impact on  1  Russia accounted for some 20% of total euro area oil imports and some 35% of total euro area gas imports in 2020.
15.03.2022  The economic setting following the invasion of Ukraine and the economic policy response Working breakfast with the business sector organised by Hill & Knowlton Pablo Hernández de Cos Governor  Good morning. I wish to begin by thanking the organisers for this invitation, allowing me to share some thoughts on the current economic situation. An economic setting which, two years on from the onset of the pandemic, is now feeling the brunt of yet another extraordinary shock with potentially extremely negative effects for the world economy. Naturally I am referring to the invasion of Ukraine by the Russian army 20 days ago. In addition to the extraordinary human drama this poses for the people of Ukraine, the consequences of the invasion, albeit difficult to predict, will foreseeably be global and extremely severe, for both the geopolitical and the economic situation. I will now analyse some of these possible consequences and the most appropriate economic policy response. The economic situation prior to the invasion My starting point for this analysis has to be that, after the strong decline observed in 2020 as a consequence of the pandemic, before the Russian army invaded Ukraine the global economy was on a gradual recovery path, albeit one that was uneven by geographical area, economic sector and population group. Thus, while some economies had managed to reach and even exceed their pre-crisis activity levels by the end of 2021, others continued to suffer from an economic activity gap.