Despite the violence of the energy crisis, the recession has been avoided. But the competitiveness of European industry is weakened and interest rates have exploded.
by Eric Albert (London, Correspondence)
The disaster announced for the European economy, wanted by the Russian president, Vladimir Putin, did not take place. A year after the start of the war in Ukraine, the region suffered a serious brake, but not the collapse feared in the summer of 2022, when the gas prices reached records. It is currently going through a period of stagnation: 0.1 % growth in the euro zone, in the fourth quarter of 2022, and zero for the entire European Union (EU). The beginning of 2023 started on the same stagnant trend. “It’s always better than a contraction,” said Bruno Cavalier, an economist at Oddo BHF, a financial group.
However, war represents a deep and lasting turning point for the European economy. “The continent had to stop depending on Russian gas and finding other sources of energy is a permanent change,” said Andrew Kenningham, the Capital Economics Cabinet. The effect of war is particularly concentrated on Europe, because gas is a product which is transported less well than oil. Its market is therefore more regionalized.
The economy has therefore currently held despite three major shocks which will leave lasting traces: a drop in competitiveness for European industry, especially for factories which are very intensive in energy; a fragmentation of supply chains, with a reduction in dependence on Russia, but also – to a lesser extent – to China; and a leap in interest rates, which places Europe in front of a more expensive debt wall to reimburse.
- Europe is resistant to the energy crisis
Since the summer of 2022, European political and economic decision-makers have looked at an indicator, hitherto obscure: the price of TTF gas, listed in the Netherlands, which serves as a reference in Europe. In August, he reached 338 euros for the megawatt hour, fifteen times his historic average. Enough to fear the economy. Finally, the crisis was more temporary than expected: Friday, February 17, the TTF was at 48.90 euros, its lowest level since eighteen months, before the start of the war. In total, while there is one month of winter left, there was neither a large power cut nor rationing of gas, despite a drop in Russian gas deliveries to Europe 85 % in the fourth quarter 202222 (compared to the end of 2021).
The bet of the Russian president, who unilaterally closed the gas supply in the summer of 2022 (with the exception of a few allied countries, including Hungary and Serbia) has largely failed. Partly, Europe was lucky, with a soft winter. But, at the same time, companies and households have managed to significantly reduce their consumption. “We had underestimated the flexibility of the economy,” said Kenningham. The result is spectacular: between August and November 2022, the EU natural gas consumption fell 20 % compared to its 2017 average to 2021.
You have 75.95% of this article to read. The rest is reserved for subscribers.