- Soaring energy prices threaten most businesses in Europe as winter nears
- Higher inflation leads to plunging consumer confidence
- The common currency sees pressure as rate hikes by ECB has little impact
The worldwide energy prices deteriorate the global population and economies. Meantime, Europe appears more vulnerable. European face the harsh reality of plunging consumer confidence, soaring gas prices, and rising inflation as winter approaches. Moreover, the Eastern Europe war completes the ingredients of downturns.
Energy Crisis and Impacts on European Economies
Russia attacked Ukraine twelve months ago, and the conflict continues. Europeans ended their holidays with an energy crisis due to reliance on Russian energy and its effects on the economy. Meanwhile, the German 1yr electricity traded beyond EUR 800 per MWh yesterday. The consequences of soaring natural gas prices remain huge.
For example, the government protected many European households from energy price surges. However, businesses remain susceptible. Europe’s energy-driven companies are vulnerable to closures this winter. High electricity plus natural gas costs affect industries line chicken farming as aluminum. Let’s check this example.
A bakery in Germany has to pay energy bills, which remain elevated. Consequently, consumers endure the surging costs through increased commodity prices. That’s how the energy crisis triggered soaring inflation. That translates to a consumer confidence fall. Meanwhile, it means consumers reduce spending, catalyzing economic recession.
That’s the ugly reality Europe faces, and the ECB (European Central Bank) cannot help evade the pessimistic effect of surging energy costs. Though it lifted key rates from record lows, the move had little to no impact on the Euro. For instance, the EUR-USD exchange rate maintains downsides at yearly lows.
EUR/USD on Bearish Trend
ECB sources highlighted a 75 basis point hike some hours before Fed Chair Powell’s comments at the Jackson Hole Economic Symposium. The Euro responded with a rebound, though the rally was short-lived as investors sent the EUR-USD exchange rate beneath parity.
The ECB remains in a challenging spot to hike interest as the economy stares at a recession. Furthermore, the energy crisis will likely prevail as Russia has no plans to end the war. Thus, the European economies and Euro will see escalated pressure as the winter nears.