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The eurozone economy is set to shrink next year as high inflation and potential energy shortages drag down output and trigger a reversal in the fortunes of the labour market, according to a Financial Times poll of economists.
Almost 90 per cent of the 37 economists surveyed by the FT said they thought the single currency zone was already in recession and the majority forecast gross domestic product would contract over the whole of next year.
“Gas markets in Europe remain a key risk,” said Chiara Zangarelli, an economist at Morgan Stanley. “Additional supply disruptions, or a particularly cold winter, could lead to renewed tensions and prices rising again, forcing another round of adaptation and demand destruction.”
Most economists said they thought Europe was past the worst of its energy crisis, sparked by Russia’s invasion of Ukraine.
A mild autumn allowed natural gas storage facilities to remain near to full capacity.
However, many fear the prospect of energy rationing could return next year, particularly if this winter is unusually cold, depleting supplies, or if gas flows from Russia are reduced further during 2023.
“The tail risk of gas rationing has likely been avoided for this winter, but the question of energy supply for the next winter is still open,” said Sylvain Broyer, chief economist for Europe Middle East and Africa at S&P Global Ratings.
European countries have managed to lower their dependence on Russian gas imports by turning to Norway, the US and the Middle East, along with switching to alternative energy sources.
But economists warn that, without Russian supplies, it will be much harder to refill Europe’s crucial gas storage facilities ahead of next winter.
“Gas storage levels are dropping quickly now,” said Carsten Brzeski, head of macro research at ING Bank.
“There is still the risk of an energy supply crisis this winter. Moreover, next winter will be even more challenging.” — Financial Times.
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