Xinhua News Agency, Brussels, April 24 (International observation) Multiple shocks make Europe the main economic loser of the conflict between Russia and Ukraine
Xinhua News Agency reporter Kang Yi Shen Zhonghao He Lili
Two months after the outbreak of the Russian-Ukrainian conflict, the EU has imposed multiple rounds of sanctions on Russia, and the latest sanctions have been extended to the energy sector. Analysts pointed out that the European economy faces the risk of high inflation and low growth, and the ongoing conflict between Russia and Ukraine has further increased uncertainty in energy, fiscal and monetary policies, making Europe the main economic loser of this conflict.
Green transition frustrated
As the main measure of the new round of economic sanctions, the European Union decided to ban the import of coal from Russia and reduce its dependence on Russian oil and natural gas imports, which has exacerbated the tight energy supply situation in Europe. In order to overcome the current predicament, Europe has to expand its imports of LNG from the United States and build new receiving terminals and gas storage facilities. Some countries even plan to import more coal in order to make thermal power stations that have been gradually withdrawn from the stage of history run at full capacity again.
Analysts pointed out that the EU’s move can be described as “killing one thousand enemies and self-destructing eight hundred”. Blindly following the United States will cost the European economy and people’s livelihood even more. In fact, it is unrealistic for Europe to get rid of its energy dependence on Russia in the short term. It may further expose its own energy gap and increase its dependence on fossil fuels, which will not help achieve green transformation and promote sustainable economic development.
Michael Vasiliadis, head of Germany’s BCE trade union representing chemical and mining workers, said even a partial cut off Russia’s gas supply to Europe could lead to the loss of “hundreds of thousands” of jobs.
German consumers must prepare for a sharp rise in electricity and natural gas prices if the European Union stops importing Russian gas, said Philipp Torn, chief executive of Germany’s largest energy company E.ON.
At risk of stagflation
In the fourth quarter of last year, the EU’s economic growth rate has slowed sharply to 0.4%, much lower than the previous two consecutive quarters of growth of more than 2%. The situation in Ukraine is adding to the woes of the European economy, which is desperately trying to get rid of the new crown epidemic. The Organisation for Economic Co-operation and Development (OECD) report states that of the regions covered by the organisation, the European economy has been the hardest hit by the Russian-Ukrainian conflict.
Affected by the large-scale sanctions against Russia, many economic indicators in Europe have deteriorated. Inflation in the euro zone rose to a record high of 7.5% in March. Inflation is high in all countries in the euro zone, with double-digit inflation in the Baltic countries and the Netherlands. The European Central Bank sharply raised its inflation forecast in the euro zone to 5.1% this year, while downgrading its economic growth forecast to 3.7% this year, and forecasts growth of 2.8% and 1.6% in the next two years, respectively.
Accompanied by high inflation, economic growth in Europe has slowed significantly, and concerns about stagflation are rising.
The International Monetary Fund pointed out that the economic growth of the euro zone will be seriously affected due to the damage to energy prices, energy security and manufacturing caused by the Russia-Ukraine conflict and related sanctions.
Gentiloni, European Commissioner for Economic Affairs, pointed out that the economic outlook for the euro zone will depend on the duration of the conflict between Russia and Ukraine, the possibility of increasing energy supplies and investor and consumer confidence.
Chris Williamson, an economist at Market Research Institute Essence Huamai, believes that exports in the euro zone have declined, and the decline in confidence has affected domestic demand. The outlook for inflation in the euro zone has deteriorated while the growth prospects are worrying, and the risk of economic stagnation or slowdown in the second quarter is increasing.
Macro Policy Dilemma
The severe geopolitical risks superimposed by the epidemic have reduced the marginal effect of European macro policy stimulus, making adjustment more difficult.
The recovery of the euro area has been highly dependent on low-cost liquidity for a long time. There are differences in the ability of EU member states to resist risks, and the recovery is uneven, which exacerbates the complexity of the European Central Bank’s exit from the easing policy. In order to deal with rising inflation, and not to drag down the economic recovery due to policy changes, the ECB is faced with a dilemma in its policy choices.
In terms of fiscal policy, the EU also faces a trade-off between maintaining fiscal discipline and promoting economic growth. In response to the impact of the epidemic, the EU and its member states have resorted to fiscal measures to support the bottom line, leading to rising fiscal deficits and debt levels, and the conflict between Russia and Ukraine has exacerbated the problem.
European Commission Executive Vice President Dombrovskis said the conflict between Russia and Ukraine is hindering EU economic activities through various channels. The EU’s public finances are severely affected, and a slowdown in economic growth will lead to an increase in the budget deficit.
(Editor in charge: Ma Changyan)