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00:00Can Europe withstand the economic consequences if severe sanctions are put in place on Russia. Yet when it comes specifically to the impact of sanctions when we look back at for example 2014 there are some estimates that suggest that the impact on Germany of the sanctions introduced by the EU accounted for about zero point two percentage points loss of GDP. Now given that the share of exports to Russia at the eurozone level is somewhat lower than for Germany the impact on the eurozone would likely to be even smaller than that. So if overall that seems that the impact at least looking at previous period seems to be a relatively small. You say relatively small. We're showing a child here though one that talks about lost trade due to sanctions on Russia going back to 2014 and the period around it even if it's relatively small relative to other European nations. The risk the economic risk falls heavily on Germany and those those links those economic links between Russia and Germany well-known of course. Does that go some way to explain why Germany finds itself perhaps more difficult to come to a common understanding with other European leaders on sanctions. Yes certainly Germany seems to be the most exposed given its trade channels. But even aside from that you know when we look at assets the most immediate channels of how the shop is likely to feed through we emphasize two channels of confidence and also price effect. Our price channel you know we've seen a big spike in gas prices last year already had a very significant impact on the region. We saw a big increase in retail gas and electricity prices across the region eating into households. Real incomes and also you know production costs of businesses. So any worsening in the geopolitical situation risks another spike in gas prices which would start that way on consumption across the region and also would likely affect inflation dynamics at least in the near term. What kind of inflation expectations and should we have for Europe outside of the geopolitically caused gas spikes for example wage growth. Is that as substantial in Europe as we're seeing in the US. Yes sure. Overall we think that the 5 percent inflation print that we saw in December has Mike remark at the peak in the eurozone inflation profile. We do expect decline in January. That's largely driven by sort of mechanical factors related to German V and CO2 pricing scheme. However risks both in terms of near term and medium term are skewed to the upside. Near-term risks are largely around supply bottlenecks and also importantly energy prices and wage growth is we think the key factor to look at when we talk about a medium term inflation outlook. Final point I would make regarding wage growth so far throughout the pandemic. Wage growth has actually slowed down at the eurozone level. But we do expect this to change this year and we do expect significant pickup in wage growth especially in the second half of the year.

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Geopolitical Tensions Risk Spike in Gas Prices, Inflation Dynamics: UBS

UBS European Economist Anna Titareva discusses the potential impact of Russia sanctions on EU economies and energy prices. She speaks with Bloomberg's Kailey Leinz, Anna Edwards and Matthew Miller on "Bloomberg Surveillance: Early Edition." (Source: Bloomberg)

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