A year ago, Russian President Vladimir Putin launched a major invasion of Ukraine, though his attempt to subjugate it and blackmail Europe into accepting violent aggression ultimately failed.
Ukraine defends its territories on the battlefield, protecting not only itself, but also other parts of Europe and European values from the attempt of a brutal dictator to revive the Soviet empire. Largely because rising energy and food prices have left consumers with less money to spend on other services and goods, while at the same time increasing business costs, growth in Europe was much weaker, and inflation jumped much more than we had previously forecast. war.
Overall, we now expect real GDP to be 5.5% lower in 2024 and the price level 3% higher than it would be if there were no war. Looking beyond the ominous headlines, we find some encouraging features that highlight Europe’s resilience and resilience. For example, until mid-2022, the eurozone economy continued to grow above its trend of around 1.4%.
Although the start of the war, initial increases in food and energy prices, and restrictive measures at the port of Shanghai affected this, strong underlying post-pandemic domestic demand dynamics initially prevailed. It wasn’t until Putin resorted to the gas weapon, gradually shutting down the Nord Stream 1 gas pipeline starting in June, that the eurozone economy began to falter.
Rising natural gas prices to a record €340 per megawatt-hour in late August, as Europe struggled to replenish its natural gas reserves at almost any cost, combined with widespread fears of fuel shortages, set the stage for a sharp economic correction. Thanks to a mild winter and, moreover, real savings in energy and fuel switching, the eurozone has grown accustomed to Russian gas remarkably quickly.
It is possible for the EU to complete the current heating season with gas reserves of at least 55% of the total capacity. This will be 30 percentage points higher than a year ago.
* Mr. Holger Schmieding, Calum Pickering and Salomon Fiedler are economists at Berenberg Bank.
Source: Kathimerini
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