Filenews 6 April 2022
A survey conducted by the Eurochambers with the participation of the CCCI showed that the whole spectrum of the economy of Europe and Cyprus in particular has been affected. The most important problems for Cyprus are, among others, the cost of energy, raw materials and the supply chain.
The purpose of the investigation carried out between 23 and 25 March was to investigate the economic impact of the war in Ukraine on the whole of Europe, one month after the Russian invasion of Ukraine and after several rounds of sanctions adopted by the EU. The survey was conducted by the Eurochambres with the participation of the CCCI and included questions covering the short- and medium-term/long-term effects of the war at both national and European level.
The survey involving a total of 25 national chambers reflects the high level of concern across the European network of chambers and the business community.
Supply chain disruptions, potential energy and commodity shortages, late payments, rising prices, rising inflationary pressures, lower consumption levels, declining purchasing power, declining business confidence and lower investments as well as destabilising the post-pandemic economic recovery were the main findings of the survey.
Regarding the short-term economic impact of the war at the national level:
• 92% of respondents highlighted rising energy prices and difficulties for energy-intensive businesses as the main issue. The activities most affected are the energy sector, tourism, the pharmaceutical industry, machinery, shipbuilding, metallurgy, logistics, transport and agriculture/livestock. The increasing pressure around energy dependencies on Russian natural gas will also affect private households.
• 84% of respondents also consider as extremely pressing difficulties linked to the supply of raw materials (metals, agricultural fertilisers, palladium, nickel, aluminium, titanium, neon gas for the production of semiconductors), the need to find alternative markets and the consequent increase in costs for logistics and transport. Indeed, as access to basic products is hindered, the companies belonging to the 64 % of chambers that responded to the survey have already experienced a significant drop in their exports and imports from Ukraine and Russia.
• The already unusually high levels of inflation are further exacerbated by the rise in gas and oil prices, but also by the increase in food prices (due to the increase in fertiliser prices) and labour costs, according to 60 % of respondents.
• One third of respondents also highlighted how the restrictive SWIFT sanctions against Russia cause huge difficulties in the day-to-day running of businesses (payments and transfers). Following Russia's announcement on 23 March and the intention to pay for the gas in roubles, Europe may decide to reduce/end its energy imports, thus contributing to an additional increase in energy prices and costs for businesses.
• Businesses are already facing enormous pressures to manage the refugee crisis and the need to ensure the smooth integration of refugees into the labour market. In the short term, this is a primary concern especially for neighbouring countries.
• Few countries, which are not directly involved in trade dependencies with Russia and Ukraine, are greatly affected by the massive decrease in tourists expected in the spring/summer, as in most countries, covid-19 restrictions are gradually being lifted. Indeed, restrictions on air traffic for Russians have affected these economies that are highly dependent on tourism.
Regarding the long-term economic impact of the war at national and European level:
• The already mentioned increase in the cost of energy and other commodities is expected to last in the medium to long term, according to 80 % of respondents. Higher costs will put at risk the post-pandemic economic recovery in most economies, according to 72% of the chambers surveyed.
• The conflict will not only lead to an increase in borrowing to strengthen economic recovery programmes (which will largely include public aid), but also the resulting contraction in EU and euro area GDP will reduce tax revenues, further burdening public debt. Moreover, the overall deterioration in economic conditions combined with inflation (68 % of respondents) may cause a significant increase in the funds needed to service public debt and corporate debt for the first time in a decade, hampering the ability of both governments and businesses to raise finance through bonds. This would also ultimately lead to negative consequences for the usual credit facilities provided to micro, small and medium-sized enterprises.
• The EU's trade and political relations with Russia are at stake and half of the chambers that participated in the survey stressed the need to diversify the sources of supply and to try to make member states more self-sufficient without losing competitiveness in the international market. This is linked to speeding up the EU's dual transition process (27 % of respondents). In this context, REPowerEU, the Joint European Initiative for Safer and Sustainable Energy by reducing Europe's over-reliance on the Russian market and accelerating the promotion of renewable energy sources, is a step in the right direction.
• Europe should also increase its autonomy in the food sector. New financial instruments are needed to support Member States, as well as joint actions to reduce disruptions in the supply chain (64% of respondents).
• As a result of the war, governments will have to review their budgetary priorities, in particular with regard to armaments and defence spending (20 % of respondents) to address demonstrated threats.
• According to 24% of the Chambers surveyed, the labour market will undergo structural changes as a result of the huge flow of Ukrainian refugees to neighbouring countries. This will increase unemployment rates unless a mitigation programme is put in place immediately.
As far as Cyprus is concerned, the main problems identified concern:
• The increase of energy prices
• The supply of raw materials, especially cereals
• Supply chain problems/disruptions
• Inflationary pressures
• The consequences for tourism and professional services where there should be a diversification strategy
• The consequences for agriculture and livestock farming
• The consequences for the real estate market
• Delays in payments
• The increase in costs for businesses
• The impact on economic recovery
• The need to diversify sources of supply
• Relations with Russia and investments
• The impact on the dual transition and the need to accelerate it
