Research Briefing | Sep 30, 2022

As Eurozone energy crisis worsens, fiscal support keeps coming

The energy crisis took a dramatic turn this week after reports of several leaks in the gas pipelines Nordstream 1 and 2 were reported. The nature of the incidents makes it very likely that sabotage was the cause, although the country responsible or the motive is unknown. This represents a sizable escalation in the crisis in Europe, and we expect geopolitical tensions and volatility in gas prices to remain a constant over the coming months.

What you will learn:

  • The magnitude of the crisis is pushing European governments to unveil further support measures to protect households and businesses. This week, Germany announced a €200bn package that will cap gas prices to limit the impact on real incomes.
  • Eurozone inflation hit 10% in September, yet another new historic high. The intensity and persistence of inflationary pressures will put further pressure on the ECB to continue its aggressive hiking cycle, likely leading to a 75 basis point rate hike at its next meeting.
  • The latest batch of data released this week continues to indicate that economic conditions and confidence are deteriorating rapidly. We think that the eurozone economy probably contracted already in Q3, with the situation worsening as we move into the winter period.
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