Pablo Hernández de Cos: Inflation and economic growth in the euro area - monetary policy and the role of other economic policies

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the Joly Andalucía Forum, Almería, 19 September 2022.

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

Ladies and gentlemen, please allow me, first, to thank the organisers of the Joly Andalucía Forum for inviting me to take part in this event. In my address today I will present an overview of the economic situation in the euro area, aiming to explain the latest ECB monetary policy decisions. I will also briefly refer to the role that other economic policies should play in such a complex and uncertain economic scenario as the present one.

The negative effects of the war in Ukraine on the European economy are heightened by its impact on energy markets

Europe is particularly exposed to the economic effects of the Russian invasion of Ukraine, given its geographic proximity, its close trade and financial ties with Russia and, especially, its high dependence on fossil fuel imports from Russia, with limited capacity to replace these imports in the short term.

Since the start of the war, the flow of Russian gas to Europe has decreased significantly, and recently the supply has effectively been shut off completely. Concerns about winter gas shortages have increased in some European countries. At the same time, gas prices on the Dutch TTF market, the European benchmark, have soared. The price of natural gas remains extremely volatile. After reaching record highs in late August, it now more than doubles the average prices observed at the start of the year.