“There will be a very hard winter”: how the aggravation of the energy crisis in Europe can affect the economy of the region

Business activity in the eurozone economy fell to a record low over the past year and a half.

This is stated in a study published on Friday, September 23, by S&P Global.

According to the company's preliminary estimates, in the first month of autumn, the composite PMI index in the manufacturing and services sectors of the countries of the region fell to 48.2 points from 48.9 in August.

The last time similar values ​​could be observed was back in January 2021, when Europe was experiencing the consequences of the coronavirus pandemic.

Note that for the third month in a row, the indicator remains below the critical level of 50 points.

This situation traditionally indicates the development of negative trends in the economy.

“A recession in the eurozone is likely as companies report worsening business conditions and increased price pressures associated with skyrocketing energy costs… The challenge for the authorities to contain inflation while avoiding a hard landing of the economy is becoming increasingly difficult,” — S&P Global chief economist Chris Williamson said.

A similar point of view is shared by specialists from the consulting company Oxford Economics.

According to the organization, the eurozone will fall into a recession in the near future, with Germany, the largest economy in the region, expecting the deepest recession.

“The manufacturing sector (eurozone. -

) continues to experience difficulties due to rising energy prices, ongoing supply disruptions and reduced demand.

The German economy is most exposed to these headwinds, and we see that the (German. -

) economy has already entered a recession, ”the agency’s study says.

According to Eurostat's calculations, over the past year, the cost of energy in the eurozone countries has increased by an average of almost 39%.

This, in turn, was one of the main reasons for the record acceleration of inflation in the region.

Thus, in August 2022, the growth rate of consumer prices for goods and services on average in the eurozone reached 9.1% in annual terms, and in the entire EU, the value was 10.1%.

The figures were the highest on record.

Moreover, in a number of European countries, annual inflation has already exceeded 11%, and in the Baltic States it has exceeded 21%.

“In the EU, there is a so-called inflation of costs, when the high costs of citizens and businesses on gas and electricity hit the entire economy.

This is what leads to a drop in business activity in the region, an increase in business pessimism and the closure of production.

The current situation is largely the consequences of anti-Russian sanctions, which led to a shortage of raw materials and an increase in energy prices, ”Alexander Razuvaev, member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers, explained to RT.

• Petrol station Hamburg, Germany

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• © Daniel Bockwoldt / picture alliance

Recall that after the start of a special military operation in Ukraine, Western countries imposed an unprecedented amount of economic sanctions against Russia.

In particular, the United States completely banned the import of energy resources from the Russian Federation, and following Washington, a similar initiative was announced in the EU.

The American embargo went into full effect back in May, while the European embargo should come into force only in December, but will only apply to sea shipments, and not to pipeline ones.

Meanwhile, according to the Bank for International Settlements, Russian oil exports to the EU have already fallen by 29%.

At the same time, Russia almost halved (by 48%) the pumping of natural gas to the European Union, as evidenced by the materials of Gazprom.

As previously repeatedly explained in the company, the reason for this was technical problems, also caused by sanctions.

Rescue of the drowning

To combat record inflation, the European Central Bank (ECB) raised its interest rate to 1.25% per annum, although before that it had kept it close to zero for almost a decade.

Traditionally, tightening monetary policy is considered one of the main ways to deal with rising prices.

Nevertheless, in the current circumstances, this mechanism is unlikely to be effective and only risks weakening the European economy, experts believe.

“The ECB simply cannot afford to raise the rate to such a level to pay off inflation.

For example, in Russia, with inflation of 9%, the Central Bank in February raised the rate immediately to 20% per annum, which eventually slowed down price growth.

If the ECB does the same, it will launch a series of defaults in especially heavily credited countries, ”Artyom Deev, head of the AMarkets analytical department, explained to RT.

According to experts, the cost of energy in Europe, together with inflation, will continue to grow in the near future.

Against this background, the states of the region may face severe economic consequences in winter, analysts say.

It is noteworthy that US Treasury Secretary Janet Yellen voiced a similar point of view the day before.

“We have seen energy prices skyrocket in Europe and it will be a very tough winter for them.

We are not even close to being affected by this.

Of course, this also affects us, but we are not as susceptible to it as they are, ”TASS quoted Yellen as saying.

• Gettyimages.ru

• © Mateusz Wlodarczyk / NurPhoto

In many ways, the anti-Russian sanctions imposed by Washington turned out to be a serious economic blow for Europe, Alexander Razuvaev believes.

At the same time, the EU countries are already working on a new package of restrictions against Moscow, which was announced on September 22 by the representative of the European Commission, Eric Mamer.

Such actions only risk exacerbating the difficult state of affairs in the region's economy, which will only play into the hands of the United States, Artyom Deev is sure.

“After the start of the NWO in Ukraine, we are seeing a record outflow of capital from the EU.

All this money goes into the US national debt, the yield of which is growing along with the Fed rate.

History has repeatedly shown that it is the States that benefit from armed conflicts in Europe, fueling the growth of their economy or at least keeping it from falling.

However, the United States itself has also faced a technical recession, although the country's authorities continue to deny it," Artyom Deev emphasized.

Ideological split

Further aggravation of the energy crisis in the EU can not only lead to an economic downturn in the region, but also destroy European unity, which will result in social unrest.

This opinion was expressed by the head of the International Energy Agency (IEA) Fatih Birol.

“The consequences will be extremely detrimental in the energy and economic spheres, but especially in the political one.

If Europe fails this energy test, the consequences could go beyond energy,” Birol was quoted by the Financial Times as saying.

According to him, the attempts of the European states to act as a united front to combat the increase in energy prices have already led to an aggravation of relations between the countries.

So, earlier, the EU states agreed to reduce gas consumption by 15% until the end of March 2023, and the European Commission called on the EU countries to show “energy solidarity” and be ready to share raw materials with each other.

However, for example, Poland and Hungary strongly opposed this proposal.

Moreover, in early September, European countries tried to agree on the introduction of a price ceiling for Russian gas.

However, the initiative was also unsuccessful, because it did not receive unanimous support from all the participants in the association.

• RIA News

• © Alexey Vitvitsky

Against this background, the head of the IEA did not rule out that with the advent of winter, some European states will still begin to negotiate with Russia on the purchase of raw materials bypassing their own sanctions or stop sharing energy with their neighbors.

In the current circumstances, the EU countries are left with only “two scenarios,” Birol believes.

“The EU and its members will cooperate in a spirit of solidarity, supporting each other ... or there is another option - where every man is for himself,” the specialist warned.

According to Artyom Deev, as the economic situation in Europe worsens, individual countries of the region will increasingly feel the effect of the crisis, and centrifugal sentiments will intensify.

This, in turn, may call into question the continued existence of the European Union, the analyst believes.

Alexander Razuvaev adheres to a similar assessment.

“Perhaps in the future the number of countries in the eurozone will decrease.

Italy and Spain may leave the euro area and return their national currencies.

Under such a scenario, governments will have a larger window of opportunity to deal with the crisis.

Some experts believe that in the end, France, Germany, the Benelux countries and Austria may remain in the euro area, ”concluded Razuvaev.