Portugal: one of the EU countries least affected by Russia's war on Ukraine

The war in Ukraine is affecting the European economy more severely than other major economies such as the US or China, reflecting the geographical proximity and important trade relations between countries. Within the European Union (EU) itself, member states have varying degrees of exposure to the effects of the war, according to a European Commission analysis. Portugal and Malta are among the least exposed countries and therefore, least affected by Russia's war on Ukraine.

In the spring forecast report, the European Commission has drawn up a vulnerability chart for member states, assessing the overall position of each country. The transmission channels for the economic impact of the war are trade, raw materials (mainly energy) and financial markets, and member states have been classified by degree of exposure to 13 dimensions of vulnerability, namely energy intensity, dependence on imports from Russia, exposure through direct trade actions, or more complex value chains, for example.

The analysis finds that the Baltic and Central and Eastern European countries emerge as the most vulnerable members, largely due to the high energy intensity of their economies and the importance of Russia in trade, notably in gas imports. Cyprus also appears significantly exposed to the consequences of war because of exports of services to Russia.

Poland also stands out as one of the most vulnerable countries, reflecting the high exposure of trade with Russia and the importance of energy in household consumption. It is followed by the Netherlands, and then Germany and Italy, with exposure that is in line with the EU average. France and Spain emerge as the least exposed large EU member states, as do Portugal and Malta, which close the ranking. 

According to the European Commission, and given Portugal's "low direct exposure", the risks "are mainly indirect, arising from commodity prices, security of supply and uncertainty about global demand".

Uncertainty and risks depend on how the war develops

The European Commission has decided to revise the EU's growth outlook downwards and to revise its inflation forecast upwards, as Russia's invasion of Ukraine has "created new difficulties just as the Union was recovering from the economic repercussions of the pandemic".

The document adds: "By exerting new upward pressures on commodity prices, causing further supply disruptions and increased uncertainty, the war has exacerbated existing impediments to growth, contradicting earlier expectations that these unfavourable factors would ease".

According to the Commission, the risks to economic activity and inflation forecasts "depend to a large extent on the evolution of the war and, in particular, its impact on energy markets".

"In addition to these possible energy supply disruptions, more severe than expected problems in supply chains and further price increases in non-energy commodities, especially food, could lead to further downward pressures on growth and upward pressures on prices. Larger than expected second-round effects from an imported inflationary shock could aggravate the risk of stagflation", he warns.

Beyond these immediate risks, the invasion of Ukraine is leading to the economic decoupling of the EU and Russia and therefore "the consequences of this scenario are still difficult to assess".