By Sardar Khan Niazi
After two horrible years of Coronavirus, spending excitement sustained by ample government spending helped exhausted family units recapture a sense of normalcy, however, all that changed with the war over Ukraine.
Normalcy is gone and the predicament has become endless. A recession is now almost certain, inflation is touching double digits and an unfriendly winter with on the horizon energy scarcities is approaching fast.
Although unwelcoming, this point of view is likely to get shoddier before any noteworthy improvement takes place next year. The crisis is nowadays the new normal. What Europe has been on the road to in the preceding decades, low inflation, and international trade, is no more now.
The alteration is intense. A year ago the majority of analysts forecast 2022 economic growth of close to five percent. Now a winter slump has changed the scenario altogether.
Family units and big businesses are equally suffering as a devastating drought and low river levels that constrain transport now exacerbate the domino effect of the war, and high food and energy prices.
At nine percent, inflation in the euro region is at levels not seen in half a century and it is weakening purchasing power with spare cash used up on petrol, natural gas, and staple food.
Retail sales were already plummeting, months before the heating season started and shoppers were scaling down their purchases. In June, retail sales sizes were down virtually four percent from a year earlier, led by a nine percent drop noted down in Germany.
Customers turned to discount chains and gave up high-end products, switching to discount brands. They had also started to skip certain purchases. Life is becoming more costly and customers are unenthusiastic to consume.
Businesses have so far coped well thanks to superb pricing power due to determining supply controls. However, energy-intensive sectors are even now suffering. Almost half of Europe’s aluminum and zinc producing capacity is already down while much of fertilizer production, which relies on natural gas, stand shut down.
Tourism has been the infrequent happy spot with people looking to expend some of their hoarded money and enjoy their first cheerful summer after three years. As workers laid off during the pandemic were unwilling to return, capacity and labor shortages handicapped even the travel sector.
Frankfurt and London Heathrow airports, the key airstrips were compelled to limit flights just for the reason that they lacked the workforce to process passengers. At Amsterdam’s Schiphol, waiting times pushed to four or five hours this summer.
Airlines also could not manage. Germany’s Lufthansa had to issue an apology to customers for the disorder, acknowledging that it was not likely to go anytime soon.
That pain is likely to intensify, especially if Russia cuts gas exports further this discomfort is likely to build up. The gas shock wave today is much greater; it is nearly double the shock wave Europe had back in the 70s with oil. In Europe, there has been a ten to an eleven-fold escalation in the spot price of natural gas over the last two years.
While the European Union has unveiled plans to accelerate its transition to renewable energy and discourage dependence on Russian gas by 2027, making it stronger, in the end, supply deficiencies are forcing it to seek a fifteen percent cut in gas consumption.
For ordinary people, it will mean colder homes and offices in the short run. Germany for instance wants public spaces heated only to 19 degrees Celsius during winter.
It means higher energy prices and therefore inflation as the EU must give up its biggest and cheapest energy supplies. For businesses, it means lesser production, which hurts growth, mostly in industry.
