In recent weeks, energy prices have moved like a roller coaster. Towards the end of August 22, an unexpected chain of supply disruptions – Russia shutting down valves, longer-than-expected repairs at US LNG plants and Norwegian export restrictions – exposed the boundaries of the EU’s energy market, a BRD report for investors showed.

Europe’s manufacturing sector is collapsing under the burden of high energy prices. Large energy and gas-consuming sectors such as steel, fertilizer and aluminum producers are forced to close plants or pass on rising costs to consumers. Even sugar producers were affected.

Europe lost roughly half of its zinc and aluminum processing capacity last year, and more than two-thirds of its fertilizer capacity is idle.

The use of coal and lignite for electricity generation in the EU increased by 15% in the first half of 2022, as decommissioned power plants were brought back into operation. Moreover, the deteriorating energy supply outlook could lead to Germany reversing its long-term policy of phasing out nuclear power by the end of the year.

The complete shutdown of Nord Stream leaves only two main gas supply routes to the EU: one via Ukraine and the other via Turkish Stream via the Black Sea. However, flows through Ukraine have significantly decreased.

In addition, the ability to accelerate LNG shipments to Europe is limited by limited infrastructure and supply.

According to Klaus Müller, the president, even if natural gas reserves reach Germany’s goal of being 95 percent full by November, it will cover only about 2 1/2 months of heating, industrial and power demand if Russia cuts supplies completely. The Federal Grid Agency, the energy regulatory body in the country.

This whole global picture cannot fail to affect the economy of Romania, despite the unexpected development of the economy.

Unexpectedly good GDP figures in the first half of the year prompted a significant upward revision of growth estimates for 2022. Meanwhile, the indicators for 2023 are being revised downwards.

Retail sales are losing momentum amid falling purchasing power, reduced savings due to the pandemic and much tighter financial conditions. Discretionary spending is now redirected to essentials (food, utilities, and loan repayments).

Housing market dynamics are increasingly vulnerable to affordability issues, rising construction costs, and lingering uncertainty already evident in official figures: weak home sales, a slowdown in mortgage applications and a drop in building permits, BRD also said in the report.

The manufacturing sector is in trouble – on June 22, it contracted for the fourth month in a row, and the number of new orders fell

Especially affected were export-oriented sub-sectors (automotive manufacturing, electrical equipment), as well as energy-intensive industries (chemistry, metallurgy, production of building materials).

In agriculture, pressure on production costs is increasing and weather conditions are unfavorable, creating problems for the new crop.

Producer prices are the first to respond to disruptions in the supply chain. Problems related to the availability of intermediate goods lead to an increase in the prices of industrial goods. In addition, the shock is transmitted through successive stages along the production process, accelerating the growth of prices for consumer goods, the publication writes.

A growing share of employers are citing labor shortages as a pressing issue, and more companies are turning to digitalisation, automation or bringing in foreign workers (the government has raised the quota to 100,000 in 2022, double the figure recorded the previous year).

The lion confirmed the unsustainability of the rapid increase in the exchange rate of the previous period

Companies are increasingly reluctant to hire additional staff due to reduced new orders and more pessimistic business sentiment. In August 2022, the indicator of hiring intentions decreased for the second month in a row (105.4 against 107.4 previously).

The summer was generous for the lei, which steadily appreciated against the euro from July 4 to September 2 (+2.6%). This is due to increased risk appetite worldwide, greater investor interest in the financial markets of Central and Eastern Europe, and increased trade flows. In addition, it also reflected the impact of some internal seasonal factors.

The EURRON has recorded a sharp reversal since September 5 as risk sentiment worsened amid Fed/ECB divergence, other signs of an economic slowdown in Europe, a growing energy crisis and lingering geopolitical tensions.

In addition, it confirmed the unsustainability of the rapid appreciation of the exchange rate in the previous period, which was not supported by serious changes in the economic condition of Romania.