The immensely damaging trade war between Russia and the west is escalating and threatens to go way beyond just food sanctions. President Vladimir Putin yesterday slapped on food sanctions, banning imports of dairy, fruit, vegetables, meat and fish products from the EU, US, Norway, Canada and Australia. If this continues the EU will suffer hugely. Currently Russia accounts for almost 10% of EU agricultural exports, valued at €11.8bn.
Russia somewhat is in a position where it can afford to be reckless on this front. The worse will come in the form of cancellation and sanctions on aerospace, shipbuilding and auto sectors. Leaving the French with a rather sizeable ship worth €2bn with all the markings in Russian, unless Georgia want it, calls are being made currently.
The broader effects these sanctions will have on the Eurozone are impossible to quantify, and are probably pretty damaging for the Euro zone. The main concern is the impact the sanctions will have on inflation, currently sitting at 0.4%, economists believe the impact may push the single currency into a deflationary spiral. Threatening any hopes of a recovery. The principle being food prices will rise as farmers have an excess of produce that they cannot shift, deflation. Mario Draghi choose not to remark on the events of yesterday accept for stating the zone was in a climate of “heightened geo-political risk” typically understated.
Mario Draghi added more fuel to the possible QE fire yesterday. The ECB Governor gave another downbeat monetary policy statement, as he dropped a few hints on further stimulus. Geo-political events, specifically those closes to home – Russia and Ukraine – are the biggest potential drag factors on the European economy and the recovery as it stands is “weak, fragile and uneven” – and this is before the Russian effect even kicks in fully.
Today we have already seen the release of German Imports and Exports data both coming out better than expected, particularly imports 4.5 times expectations. Relatively quiet day on the data front, with UK trade balance and construction data, rather worryingly for me certainly the highlight comes in the form of Canadian unemployment this afternoon.