Spain Takes Measures to Shield Economy from Ukraine War Fallout

(Bloomberg) -- The Spanish government announced a package of measures to protect its economy from the consequences of the war in Ukraine, extending energy tax breaks, bolstering renewable power investments and facilitating grains to farmers.

In a speech to lawmakers, Prime Minister Pedro Sanchez said Wednesday that the country had to prepare for the fallout of the sanctions against Russia, which are primarily being felt via soaring energy prices that could threaten the recovery of the euro zone's fourth largest economy.

“Is very likely that energy prices remain high and volatile in the future, directly impacting the consumer price index and the purchasing power and wellbeing of our compatriots,” Sanchez said. “The result of all of this will be an economic slowdown in our country and Europe and less investment at a key moment for Europe as we consolidate the recovery from the Covid-19 crisis.”

Sanctions will curb Spanish exports and investments in Russia and most likely disrupt grain imports from Ukraine, Sanchez said. Ukraine is the main supplier of corn and sunflower oil to Spain, providing 30% and 60% of imports respectively, according to Madrid-based economic consultancy Afi.

The Spanish prime minister called on unions and businesses to avoid fueling a new price spiral in upcoming wage negotiations as the country's inflation rate hit a 33-year high in February on higher energy and food costs.

To ease power costs on households and businesses, Sanchez extended until June 30 a series of energy tax breaks including the value added tax on electricity, the electricity production tax and special electricity tax. He also announced that the government will devout an extra 1 billion euros ($1.1 billion) on a plan backed by the EU recovery funds to bolster the production and storage of renewable energy.

He said his government will request for the European Commission use all the means available to facilitate the supply of grains and oilseeds to farmers, and if needed, ask for more support from the Common Organization of Agricultural Markets.