How many shocks can the economy take before it collapses? The Eurozone economy in the first quarter grew at a rate above its trend. The winter wave of the pandemic, the shock of the war, supply shortages, new restrictions in China and rising oil and food prices have all taken a toll on him. However, they failed to bring down its pace after the pandemic. However, in mid-June, a further increase in gasoline and food prices did not bypass her, and we changed our forecast. Initially, we talked about a possible pause in growth during the summer, and now we are talking about a clear recession in the eurozone and stagnation in Britain, which is still affected by its exit from the EU. After a new increase in gas prices in July, Russia further reduced the flow of gas from the Nord Stream 1 gas pipeline from 40% to 20%. Markets have taken Russia’s announcement that it will suspend exports from the pipeline in question for three days from Aug. 31 for alleged repairs as a clear threat of a total shutdown of supplies.

Natural gas is of great importance for Europe. If consumers really had to pay for fuel in full, an increase of 100 euros/MWh would lead to a price increase of almost 5% and therefore a reduction in the purchasing power of consumers (and this increase includes the direct and indirect effects of natural gas and electricity ). prices, as well as the transition from companies to consumers). In fact, the consequences will be less dramatic. Geria Epirus still imports a lot of gas under much cheaper fixed price contracts. For now, some of the impact falls on corporations, but more importantly, governments are more or less stepping in to shift the burden from current consumers to future taxpayers.

Governments are shifting the burden from current consumers to future taxpayers.

However, even with government assistance, households will have to face even higher energy bills and companies will face higher costs than we expected three weeks ago, when a megawatt-hour cost 200 euros. We now forecast an even higher fourth quarter inflation of 10.1% and 9% in January-March 2023 (from 9.6% and 7.7% respectively) and an even larger fall in GDP of 2.4% from 2 % previously.

* Messrs. Holger Schmieding, Calum Pickering and Salomon Fiedler are economists at Berenberg Bank.