According to the gas account – Newspaper Kommersant No. 168 (7369) dated 09/13/2022
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Stopping Russian gas supplies via Nord Stream will have significant economic consequences for European countries, including a slowdown in growth or a reduction in GDP. Analysts at Focus Economics expect the gas shortage to hit the biggest industrial economies, Germany and Italy, the hardest. Capital Economics believes that the increase in tariffs will double the share of payments for utility bills in household disposable income, and in the metals and chemical industry, industries with the highest share of energy resources in costs, production may become unprofitable.
Even before the announcement of the shutdown of Nord Stream gas, analysts polled by Focus Economics predicted a sharp slowdown in euro area growth in the third quarter and a 0.1% quarter-on-quarter GDP contraction in October-December. Some economists predicted a decline in the region’s GDP for the next year as well. Now these forecasts are likely to be further reduced, Focus Economics expects. Gas prices are now about four times higher than last year and will depend on supplies through other gas pipelines, as well as imports from other countries – “this is a significant blow, but not a lethal one,” the company says.
Countries with a developed industrial sector dependent on Nord Stream supplies, such as Germany and Italy, may suffer more than others from a shortage of gas. The Economist Intelligence Unit expects that Austria, the Czech Republic and Slovakia will also face gas shortages, the governments of these countries are already preparing plans to reduce demand for this fuel, for other countries this will mean a decrease in business activity and consumer confidence, as well as increased inflation. The euro against the dollar will be weaker than previously expected.
Capital Economics believes that in Europe the share of household spending on utility bills could double and reach 10%, and a significant part of enterprises could turn out to be unprofitable. Support from the state should mitigate the effect, consumers will start saving energy, but the shock will still be significant, which could lead to a deeper recession, the center believes. In the EU countries, the price of gas is approximately the same, the cost of electricity in Eastern Europe is on average 40% lower than in Western Europe, and coal is a significant source of heating only in Poland and the Czech Republic. On average, households spend 5-7% of their disposable income on electricity, gas and coal, compared to 3% in the Baltic States. In the absence of subsidies, continued high prices would mean household spending would roughly double: up to 12% in Hungary, Slovakia and Bulgaria, 11% in the UK, 10% in Italy, 9% in Germany, 8% in Poland, 7–8% in France and Spain, and 5–6% in the Baltic countries.
Analysts note that for manufacturers, energy costs amounted to 1-3% of the cost, but this share depends significantly on the industry: in mechanical engineering it can be less than 1%, in metallurgy and the chemical industry it can exceed 10%, and in the production of iron, steel, fertilizers, glass and cement – 20%. At the same time, the ability of companies to bear higher costs will depend on the level of profitability. In sectors with higher energy consumption, margins tend to be lower, as is the ability to raise selling prices, Capital Economics notes.
Goldman Sachs predicted that with the full pass-through of higher energy prices, heating and electricity bills would rise from €160 to €500, and chemical and cement producers in Germany and Italy could face the need to cut gas consumption by about 80%. . Such restrictions could lead to a reduction in GDP for the euro area by 2% by March 2023, for Italy and Germany by 4% and 3%, respectively. This scenario, however, is the most negative – it is assumed that price caps and other tariff reduction measures will partially contain the impact of higher energy prices on the economy.
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