Saturday, August 9, 2014

Russia embargoes "Made in West" food - Deflationary and unemployment pressures?

European Union's "Food and Live Animals" (SITC01) exports to Russia in 2013 accounted for some more than 7.3% of the block's flows towards this trade partner (see European Commission Trade Statistics with Russia), and were of approximately 8.6bn Euros gross value. Not outstanding in aggregate, but in industry level whose total exports had a value of approximately 75.3 bn Euros (see European Commission Trade Statistics with the World), gross, it is something.

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What does this mean for the inflation? It is simple! SITC01 firms of the Eurozone will have to cut their prices to boost the demand of their undisposed goods in the interior and in other trade partners. Should this scenario be realized, it will add further downward price pressure in the already fragile price and product developments of the Monetary Union.

On the other hand, the SITC01 firms might seek to limit their production as a response to a lower demand, which will consequently limit the workforce they employ.

At the moment most of the Eurozone firms of this sector are in this "mood": cutting prices, and cutting (or not creating) jobs, as it is shown by HICP and unemployment statistics. Therefore, in what way the involved firms and producers will react, it remains to be seen...