Life,  Wealth

The EU economy in 2023 is not optimistic

  At the beginning of 2023, unpleasant news came. In its latest “Global Economic Prospects” report, the World Bank has significantly lowered its forecast for global economic growth in 2023, from 3% in June 2022 to the current 1.7%.
  Previously, the International Monetary Fund’s outlook was not optimistic: more than one-third of the world’s economies will experience negative growth in 2023, including the EU’s two largest economies: Germany (-0.3%) and Italy (-0.2%). %).
The energy crisis is difficult to alleviate in the short term

  From the perspective of EU countries, the biggest impact on the economy in 2022 is the conflict between Russia and Ukraine and the energy crisis that has been seriously exacerbated by the conflict between Russia and Ukraine.
  Different EU countries have different strategies to deal with the energy crisis. Looking back at the whole of 2022 at the turn of the old and new years, we can see that the effects of different strategies adopted by countries are not the same.
  In general, in 2021, before the outbreak of the Russia-Ukraine conflict, nearly half of all natural gas imported by the EU came from Russia, but different countries depend on Gazprom in different degrees: Poland, Finland, and Slovakia are geographically close to Gazprom. Half of the natural gas imported by Germany, the EU’s largest economy, will come from Russia in 2021, and the German chemical industry, which employs more than 300,000 people, has always used natural gas as a raw material. The Russian gas supply cutoff also hit other EU countries with a high proportion of natural gas in their energy structure, such as Italy (natural gas accounts for 40%), the Netherlands (37%), Hungary (33%), Croatia (30%), etc., These countries all experienced severe inflation when natural gas prices soared to record highs.
  Among them, some EU countries are faster and more effective in finding other sources of natural gas. Italy is an example. Soon after the Russian-Ukrainian conflict broke out, Italy actively went to Azerbaijan, Egypt, Algeria and other countries to purchase liquefied natural gas, especially Algeria, which is separated from Italy by the Mediterranean Sea, and it is very convenient to transport liquefied natural gas by sea.
  Unlike Germany, which is overly dependent on Russia’s pipeline natural gas, EU countries such as Italy, Spain, and France have an early advantage in quickly switching to the purchase of LNG because they have fixed LNG “regasification” terminals on land.
  The so-called “regasification” refers to the process of converting liquefied natural gas back into gas.
  As for those EU countries that do not have fixed terminals on land, they turn to the construction of floating terminals at sea, because the construction of floating terminals at sea is less time-consuming than the construction of fixed terminals on land. Germany is ahead in this regard: Germany plans to build five offshore floating terminals, the first of which has recently been completed. If all five floating terminals are put into use, Germany will have the highest LNG import capacity in Europe. list. It is followed by Greece: Greece also plans to build five offshore floating terminals. If it succeeds, Greece will become the center for importing liquefied natural gas from Southeast European countries.
  The problem is that even if all the planned floating terminals can be put into use as scheduled, it will take at least two years for countries such as Qatar, Australia, and the United States to increase their LNG production. Before that, EU countries that were too dependent on Gazprom will still face upward pressure on energy prices.
  In order to alleviate the impact of soaring energy prices on the living standards of ordinary people, most EU countries have adopted remedial measures, either limiting price increases or directly subsidizing energy users. France and Spain have done a better job of limiting price increases, while Germany leads the rest of the EU in terms of subsidies.
  According to reports, as of the end of November 2022, EU member states have promulgated more than 150 measures to alleviate the impact of Russia-Ukraine conflicts and sanctions against Russia on their economies. 525.5 billion euros.
  At the same time, as sanctions against Russia and Russia’s anti-sanctions have different economic impacts on EU member states, the political attitudes of the EU on sanctions against Russia have become more and more divided, and it is becoming more and more difficult to achieve Consensus.
Electricity market reform struggles to start

  At present, the natural gas storage in northwestern Europe has exceeded 95%, which can theoretically be supported until March 2023. However, the EU’s long-term energy reform has just begun, and one of the important aspects is the reform of the electricity market.
  Compared with prices in early 2021, the highest wholesale prices for electricity and gas in Europe have soared by as much as 15 times today. At present, Europe mainly relies on liquefied natural gas transshipped from the United States or Asia to replace the original Russian pipeline natural gas. The cost has risen sharply, and the vacancy caused by the cut-off of Russian gas supply is difficult to be filled by nuclear energy or hydro wind power in a short period of time. Even restarting coal power in some EU countries will not be enough.
  European Commission President Ursula von der Leyen has promised to reform Europe’s electricity markets to help reduce electricity prices, which have been driven up by soaring gas prices. French President Macron and German Chancellor Scholz also expressed their support for reforming the pricing mechanism of the electricity market to curb soaring electricity prices.
  Von der Leyen pointed out that the soaring electricity prices in EU countries have exposed the limitations of the current electricity market design.
  The purpose of the EU’s electricity market reform is to forcibly decouple the price of electricity from the price of natural gas, realize the “redistribution” of the profits of power generators, and thus curb the soaring price of electricity.
  At present, the power market reform plan discussed by the European Commission can be roughly summarized into three paths: one is to set a ceiling for natural gas prices; the other is to split the European power market; the third is to levy a super profit tax.
  But Professor Jean-Michel Grachan of the European University College believes that power market reform is not a panacea for solving Europe’s energy crisis, because power market reform alone will not reduce the dependence of EU countries on fossil fuels. He suggested that in addition to achieving short-term goals, the reform of the EU electricity market should also promote the EU’s transition to clean energy.
transfer of energy-intensive industries

  Soaring energy prices have naturally pushed up inflation in EU countries and the euro zone as a whole. Although inflation in the euro zone eased to 9.2% in December from a record high of 10.6% in October 2022, economists said it was too early to declare victory in controlling inflation.
  Throughout 2022, the European Central Bank will raise interest rates four times in a row. In mid-December, the European Central Bank raised interest rates from 1.5% to 2%. Lagarde, the bank’s president, has promised at least two more rate hikes of half a percentage point in February and March 2023.
  In the 2022 Economic Outlook (Autumn) published on November 11, 2022, the European Commission stated that amidst increased uncertainty, high pressure on energy prices, declining household purchasing power, a weaker external environment and tighter financing conditions, the European Union is expected to , the euro zone and most member states will fall into economic recession in the last quarter of 2022, and the contraction of economic activities will continue until the first quarter of 2023. The economic growth of the EU and the euro zone in 2023 may only be 0.3%.
  Looking forward to 2023, many economists believe that for EU countries, the trend of the energy market in the new year will remain as challenging as in 2022, and the cost of input will remain high for many years, which will Make some industries in the EU uncompetitive, causing these industries to lose their share in the global market.

  This challenge is particularly acute for Germany, as many industries in Germany rely heavily on the use of natural gas. If Germany has difficulty finding enough natural gas from other sources, then these industries in Germany may become globally uncompetitive, and Germany may thus fall into the ” deindustrialization” dilemma. German politicians are more pessimistic about the country’s economic prospects. On Christmas Eve 2022, Wolfgang Kubicki, deputy speaker of the German Bundestag, said on December 24, 2022 that if Germany continues on its current path and fails to properly deal with the ongoing energy crisis, Germany may be very Soon to be a dysfunctional, bankrupt country.
  The energy crisis caused by the conflict between Russia and Ukraine will undoubtedly reshape the global supply chain and industrial layout.
  Some industries in the EU lost competitiveness due to the energy crisis, but brought opportunities to other regions and countries.
  The supply of cheap and high-quality Russian gas has been cut off, and energy from other sources is difficult to fill the energy gap for a while, which has led some EU energy-intensive companies to transfer their production capacity to China in order to enjoy sufficient and low-cost energy supply.
  For example, the German chemical giant BASF (BASF) stated in October 2022 that it will permanently reduce the scale of production in the European market and expand production capacity in China. Previously, BASF had announced in September 2022 that it would invest 10 billion euros in China to build a world-class chemical base.
  For EU chemical manufacturers, building factories in China can not only escape the energy shortage faced by local operations, but also reduce production costs to a certain extent, and China can also enhance its competitiveness in the supply chain of chemical products. It can be described as a win-win situation.
  However, the biggest beneficiary of industrial transfer from EU countries is actually the United States.
  The production environment of energy-intensive enterprises in the European Union has deteriorated sharply, giving the United States the opportunity to “poach the wall”. When more and more EU companies were forced to close due to the energy crisis, the United States seized this opportunity and lured EU companies to build factories in the United States.
  For example, ArcelorMittal, one of the world’s largest steelmakers headquartered in Luxembourg, announced that due to soaring electricity costs, the company decided to cut the production capacity of its two German factories; The performance of the plant producing hot briquetted iron exceeded expectations, coupled with very competitive local energy prices, so the company decided to expand the plant in the United States.
  For another example, the Dutch fertilizer company OCI also announced in September 2022 that it would expand an ammonia plant in Texas, the United States; German Volkswagen (Volkswagen) and Danish jeweler Pandora (Pandora) also announced earlier that plans for US expansion.
  Of course, the reasons for EU countries to accelerate the process of “de-industrialization” are not only high energy prices, but also factors such as the EU’s increasingly stringent regulatory system and import carbon tax. These circumstances have led to an increase in business operating costs.
  According to estimates by Jefferies & Company, a well-known American investment bank, one-tenth of Europe’s crude steel production capacity has been idled; all zinc smelters have limited production, and some smelters have closed; half of primary aluminum production capacity has also been closed ; 70% of fertilizer factories have stopped production.
  ”Old Europe”, once the birthplace of human industrialization, had bad luck in the first three years of the 2020s. Various factors led to the acceleration of the “de-industrialization” process, and the economic outlook for the new year is full of gloom.

error: Content is protected !!