Pablo Hernández de Cos: The economic setting following the invasion of Ukraine and the economic policy response

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at a working breakfast with the business sector, organised by Hill & Knowlton, Madrid, 15 March 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

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. In any event, the recovery was still influenced by the course of the pandemic, partly as a result of the emergence of new variants of the virus.