The energy shocks that sent ripples through Europe after the sudden outbreak of the Russia-Ukraine conflict a year ago are unlikely to dissipate completely, no matter how the conflict evolves, analysts have said.
Feb. 24 marks the one-year anniversary of the outbreak of the conflict which has increased the volatility of energy markets and sent prices soaring.
A World Economic Forum (WEF) study published this week noted that household energy prices around the world have nearly doubled since the start of the conflict, pushing inflation to record highs in many countries in Europe and beyond.
But the impacts do not stop there: the WEF report says the conflict is slowing the industrialized world’s transition to renewable energy sources and increasing the global poverty rate by fueling energy insecurity.
Leaders of the United Nations’ Food and Agriculture Organization (FAO), the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO) said earlier this month that food insecurity is a growing problem due to the situation in Ukraine, increasing the obligation for wealthy countries in Europe and elsewhere to do more to stem the problem.
European countries, meanwhile, have spent the recent months scrambling for alternative sources of natural gas and petroleum to replace the energy imported from Russia before the start of the crisis. That is especially true for Germany and Italy, the European Union’s (EU) two largest exporters and the two largest importers of Russian energy before the start of the conflict.
On a local level, recent developments have hindered the growth of businesses of all sizes, hitting hard just as economies are emerging from the impact of the coronavirus pandemic. In the fourth quarter of last year, registrations of new businesses fell and bankruptcies increased, according to Eurostat, the statistical office of the EU.
“For all practical purposes, the energy shock in Europe is here to stay,” Lorenzo Codogno, founder and chief economist at LC Macro Advisors and a visiting professor at the London School of Economics, told Xinhua.
“There is no supply of gas (from Russia) and very little supply of oil, and I think this is a situation that will continue for the next ten or 20 years. This is not a temporary situation,” he said.
According to Alessandro Polli, a professor of statistical economics at Rome’s La Sapienza University, the continued energy shock will have a lasting economic impact that goes beyond the direct impacts of energy scarcity and higher prices.
While “European countries will have to confront problems related to energy costs,” they also need to “reduce dependence on fossil fuels and preserve their industrial base,” Polli told Xinhua.
Polli believes that the economic consequences of the current situation are larger than those of the 2008-2009 global financial crisis — perhaps even the largest for the European continent since World War II.
According to Codogno, the diverse economic impacts will be felt in all walks of life.
“It all adds up to less disposable income for everything else,” Codogno said. “Effectively, it is a permanent shock for consumption and probably for investment. I think it could have a permanent impact on economic growth in Europe.” ■