Hassouna Al Tayeb (Abu Dhabi)
Many economists expect inflation rates in the euro area to exceed 10% next autumn, and to continue for the longest period, as a result of the rise in gas prices, in addition to the possibility of the region entering a recession during the year 2023.
This would add more pressure on the European Central Bank, to take into account a significant increase in interest rates, regardless of the warnings of observers, of the repercussions of this and its negative impact on consumer activity.
growth and jobs
In one of the meetings held during the last week of August in Wyoming, the decision makers of the European Central stressed the need to make greater sacrifices, in terms of the loss of growth and jobs, in order to control inflation once once more.
The price of gas in Europe at the end of last August reached a record of 343 euros per megawatt hour, which is more than double the prices of the end of last July, and regarding 7 times, during the same period in 2021. The decline in Russian gas flows increased fears of shortage, to become involved The European Union is preparing measures to prevent further price hikes.
Many analysts expect the annual change in consumer prices to increase by more than 10% in October, compared to the record numbers recorded by these prices last July at 8.9%.
Recession and inflation
Some experts also believe that the significant rise in gas prices will seriously harm the European economies, in addition to the fact that the high prices for the consumer and the cost for companies, exacerbates the recession and inflation. They believe that the inflation rate will exceed 4% during the year 2023. Economists’ expectations are accompanied by some pessimism regarding the gross domestic product of the eurozone in 2023, with growth declining by 50% to an estimated rate of less than 1%, compared to last June.
The wholesale price of 200 euros per megawatt-hour adds between 7 and 8% to inflation in Germany. Long-term gas contracts, delays in price hikes, and some costs being absorbed by the business help ease additional pressures. In the wake of the tourism sector boosting the growth of the region’s countries during the current summer season, GDP is likely to decline, until the spring of 2023, with a decline in private sector consumption, business sector investment and exports. It is also expected that the effects of the rise in gas prices on the growth of the Eurozone will continue for quite some time.
Economic activities affected
It may be difficult for the eurozone to return to pre-Covid-19 growth levels, given the continued loss of competition, which in turn leads to a loss of some activity, especially in sectors such as metals and chemicals.
The five-year swap rate, the benchmark that measures inflation every five years, has been elevated in the eurozone over the past few weeks.
Citibank’s expectations indicate that the inflation rate in the euro area will reach 10.3% during the autumn, in addition to the contribution of high energy prices and the depreciation of the euro below the value of the dollar, to further rise in consumer prices.
