Brief Analysis of Developments in the Ukraine Crisis

While Russia is only of minor importance for Austria and the EU in terms of its economic size, dependencies prevail regarding imports, especially natural gas imports from Russia can hardly be replaced by imports from alternative sources in the short term. Therefore, the escalation of the Russia-Ukraine conflict will affect the economy in the euro area primarily through rising energy prices, but also increasing food prices. In January 2022, energy prices contributed roughly 35 percent to the Austrian inflation rate. Interruptions of natural gas supplies over a longer time span without recourse to alternatives will cause expected shortages by late fall at the latest, that will directly affect the chemical, fertilizer, pharmaceutical and plastics industries. The risks are therefore considerable and could unfold a significant negative impact on economic development. In international comparison Austrian banks are most exposed to Russian risk through their local subsidiaries and claims. Austria ranks third in terms of total claims, in relation to the gross domestic product, Austria is by far the most affected country across Western economies. However, the Russian crisis is unlikely to exert systemic risks on the domestic banking system. Only 4 percent of Austrian banks' foreign claims are related to Russia.