OUR Energy crisis in Europe it’s not over yet despite the big cuts in its prices natural gas and euro recovery, warns Institute of International Finance (MIF). “Europe’s energy shock remains significant and ongoing,” its analysis says, with the institute sticking to its forecast for recession in the eurozone in 2023. According to the IIF, the euro has almost recovered to pre-war levels and, after first falling below 1 to 1 against the dollar last year, is now hovering around $1.09. prices to import prices – which led many to believe that the energy shock was over.

Indeed, she notes analysis, natural gas prices are down 75% from their August 2022 highs, whether in the spot market or futures contracts. But according to the IIF, the picture is misleading when you look at these numbers: First, because even after the latest dip, European gas prices remain 220-230% higher than the pre-pandemic average, so the terms of trade shock remains too big for Europe. “The huge jump in gas prices last summer distorted market perceptions, making their recent decline look like Europe has returned to normal. This is not so, ”the analysts of the institute emphasize. Second, the partial drop in prices reflects significant changes in demand, as industrial production in energy-intensive sectors is well below pre-war levels.

One example, according to the IIF, is the chemical and pharmaceutical industry in Germany, where production is 15% below pre-crisis levels. This production cut, which the institute says is permanent, has helped lower gas prices since last year’s rally, even as a recovery in production in the automotive and microprocessor sectors helped Germany avoid a recession in 2022.

Thus, the IIF concludes that the shock to Europe is significant and not yet over. And this has important implications for politics and markets. The decline in output in energy-intensive sectors is forcing the institute to stick to its eurozone recession forecast, which it notes makes it difficult to justify an interest rate hike by the European Central Bank. And based on these data, the recovery of the euro is also not justified, analysts say, predicting that the single currency will sink again and return to parity 1 to 1 with the dollar in the near future.

Bloomberg analysts still note that the energy crisis is not over yet, and refer to the constant fluctuations in natural gas prices.