The financial rating agency Moody’s warned on Tuesday that the war in Ukraine is increasing the risk of stagflation in the European Union (EU), placing Portugal among the most vulnerable countries in terms of exposure to inflation.
The Russian invasion of Ukraine has exacerbated underlying supply and demand problems and pushed inflation to levels not seen in the EU since the mid-1980s,” Moody’s Senior Analyst Heiko Peters was quoted as saying in a paper published today. .
Likewise, the analyst points out that a cessation of the supply of natural gas by Russia “will probably intensify these pressures, weaken economic activity and increase the risk of an environment of stagflation.”
Stagflation, i.e. recession or economic stagnation with high inflation, would result from the forecast growth of the EU economy of 2.5% in 2022 and 1.3% in 2023, together with a slowdown in the inflation, which Moody’s expects to be 6.8% this year and 4.4% next.
Still, changes in regional and international supply and demand, along with structural changes, “such as the transition of EU countries from importing Russian energy, have increased the risks.”
However, for stagflation to occur, Moody’s notes that price dynamics would have to be curbed by factors “such as higher and longer energy prices”noting that fiscal and monetary policies focused solely on growth “may also increase the risk of a stagflation scenario.”
Moody’s also warned about the exposure of southern Europe to this phenomenon.
“According to a series of indicators that suggest differences in exposure to inflation, significantly lower growth and responsive policies, we see that southern Europe is more exposed to a scenario of stagflation,” says the rating agency.
“The countries most likely to see this temporary price rise become permanent and with the least political resources are Malta, Cyprus, Portugal, Slovenia and Croatia,” they point out.
Portugal is named by Moody’s as the seventh country most exposed to inflation and the twentieth in the ‘ranking’ of political resources among the 27.
Source: Observadora
