With high gas prices, Belgium is likely to suffer in 2023 – Economic Policy

The European economy is not doing so badly at the end of a particularly turbulent year. Candriam’s head of economic research, Florence Pisani, notes that growth in the euro zone should be around 3.2-3.3% this year. But for next year, it may be more difficult. “Eurozone growth remains highly likely to be stifled by high gas prices,” he warns.
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The European economy is not doing so badly at the end of a particularly turbulent year. Candriam’s head of economic research, Florence Pisani, notes that growth in the euro zone should be around 3.2-3.3% this year. But for next year, it may be more difficult. He warns that “the likelihood of seeing growth in the euro zone choked by higher gas prices remains high.” Florence Pisani explains that “this year one element allowed us to avoid too sharp a shock in activity. State support measures, what is happening in the labor market. If you look at the level of jobs (the number of people in work), we are on average in Europe 2 times higher than the pre-crisis level. %, while Belgium has 3.3%. It is even higher and for the Netherlands it is even 5.1%. This sets the stage for rising household incomes”. Surveys of industry and services show stagnation. Due to the shock of war and energy prices, household “We have just passed a 60% increase in energy prices for the consumer. “Energy makes up 10% of their basket, which means that this energy price increase is 6% of inflation across Europe.” Florence Pisani also notes that the impact of energy prices has also started to be felt in industry, where some energy-intensive sectors are already decelerating by around ten percent, and the increase in gas prices is not over yet. “Because what is passed on to the consumer in retail prices is only a small part of the wholesale price increase,” the economist emphasizes. Even if the price of natural gas does not increase and is at the current level, i.e. close to 100. -€150 per MWh, we risk seeing this increase in wholesale prices for several more years, raising retail prices and affecting purchasing power”. What will happen to natural gas prices depending on supply and demand? 25 billion m3. This is far less than the 155 billion per year before the war. We have made up for the missing Russian gas mainly by importing liquefied gas from the US or Qatar… But what will happen next year? If Russia continues to supply 25 billion m3, consumption if it remains 10% below normal (before the war in Ukraine) and we continue to import LNG as much as this year (ie 55 billion m3 more), we will have enough gas to meet the demand and we will survive. “But this is a favorable scenario, because this Some of the LNG purchased in 2016 attracted us because growth in China was weak, recalls Florence Pisani. If we make one of these favorable assumptions and, for example, Russia cuts off any supplies or global growth and more specifically China, we are not immune to shortages next winter,” he warns. Along with the risk of shortages, there is also a growing bill. the energy balance worsened sharply. In other words, in 2019, the countries of the euro zone spent 100 billion euros of their income going abroad to buy energy. But today this balance has increased to 800 billion (in annual figures) or another 700 billion. This year, the euro zone transferred additional income equivalent to 3 points of GDP to the rest of the world.To see where we are coming from, you need to know that in 2019, when gas prices were €10 per MWh, these transfers to the rest of the world were only 0.2% of European GDP. At 100 euros, they are 2.5%, and at 200 euros, they are 5 points of GDP. Faced with these amounts, “if the price of gas rises, it will be difficult for governments to suppress the shock, because ten they do it. this year”, warns Florence Pisani. Candriam estimates that if gas prices remain around €100 per MWh early next year, growth in the euro zone should be around 0.5%. But if this price is above 200 euros, we are heading towards a recession with a negative growth of 0.9%. The situation will become more difficult because this energy shock will be unevenly distributed, continues the head of economic research of Candriam. A gas price of €200 per MWh translates into a transfer to the rest of the world of “only” 2 points of GDP for countries like the Netherlands or Luxembourg, and 8 points for Belgium or Italy. “We do not see how these countries will avoid entering a relatively strong recession,” concludes the economist. We have been warned. If there is a new increase in the price of gas, it is likely that the Belgian economy will suffer very badly.