The war between Russia and Ukraine and the sanctions on Moscow present fiscal and growth challenges for countries in the euro area, according to Fitch Ratings.
The war is an "external shock," like the coronavirus pandemic, which will be felt across the bloc, and its impact will vary depending on Russian natural gas and trade ties, the US-based global rating agency said on Thursday.
"The energy market is the main macroeconomic transmission channel via higher prices. Russia accounted for 38% of EU natural gas imports and 23% of oil imports in 2020," it said in a statement.
The war, in addition, could prolong supply-chain disruptions, according to the agency.
Fitch said that it will update its 2022 euro area economic growth forecasts next week, noting that downward revisions are likely.
The agency also said on Friday that the war worsens high inflation in the Baltic states with higher oil and natural gas prices, lowering private consumption and weakening growth prospects.
"Lithuania is particularly exposed to international energy price volatility after it phased out domestic nuclear energy in 2009, with imports accounting for three-quarters of its energy supply," Fitch said in a separate statement.
"Latvia is undertaking plans to reduce its reliance on Russia, which provides all of its natural gas imports, by accessing Lithuania's LNG terminal, but the required pipeline expansion will take until next year," it added.
Among the Baltic states, Estonia is the least reliant on energy imports due to its domestic coal and shale oil production, Fitch said.
