1676870184 A year of war in Ukraine not a collapse but

A year of war in Ukraine: not a collapse, but an economic turning point for Europe

The floating LNG terminal The floating LNG terminal “H’egh Gannet” in the industrial port of Brunsbüttel (Germany), on January 20, 2023. MARCUS BRANDT/PICTURE-ALLIANCE/DPA/AP IMAGES

The catastrophe for the European economy predicted by Russian President Vladimir Putin did not materialize. A year after the start of the war in Ukraine, the region has suffered a major setback, but not the collapse feared in the summer of 2022 when gas prices hit record highs. It is currently going through a period of stagnation: 0.1% growth in the eurozone in the fourth quarter of 2022 and zero for the whole European Union (EU). The beginning of 2023 started with the same stagnant trend. “It’s always better than a contraction,” Bruno Cavalier, an economist at Oddo BHF, a financial group, said in a note.

However, the war represents a profound and lasting turning point for the European economy. “The continent had to stop depending on Russian gas and find other sources of energy, it’s a lasting change,” explains Andrew Kenningham of Capital Economics. The effects of the war are particularly concentrated in Europe because gas is a less transportable product than oil. Your market is therefore more regionalised.

The economy has therefore held its own for the moment, despite three major shocks that will leave lasting scars: a decline in the competitiveness of European industry, particularly in very energy-intensive factories; a fragmentation of supply chains with a reduction in dependence on Russia but also, to a lesser extent, on China; and a rise in interest rates, leaving Europe with a wall of debt that is more expensive to repay.

  • Europe is resisting the energy crisis

Since the summer of 2022, European decision-makers from politics and business have had their eyes on a previously unknown indicator: the price for TTF gas quoted in the Netherlands, which serves as a benchmark in Europe. In August, at EUR 338 per megawatt hour, it reached fifteen times its historical average. Enough to fear an economic standstill. Finally, the crisis was more temporary than expected: on Friday, February 17, the TTF stood at 48.90 euros, the lowest level in eighteen months before the start of the war. Overall, there was no major blackout or gas rationing with a remaining month of winter, despite an 85% fall in Russian gas supplies to Europe in the fourth quarter of 2022 (compared to the end of 2021).

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The bet of the Russian president, who unilaterally shut down gas supplies in the summer of 2022 (with the exception of some allied countries, including Hungary and Serbia), has largely failed. Partly Europe was lucky with a mild winter. At the same time, companies and households have succeeded in significantly reducing their consumption. “We underestimated the flexibility of the economy,” stresses Mr. Kenningham. The result is spectacular: between August and November 2022, natural gas consumption in the EU fell by 20% compared to its 2017-2021 average.

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