Page 30 - bne monthly magazine October 2022

30 I Cover story bne October 2022
More pressure is being placed on small traders as contracts are usually signed well in advance to ensure the broker has power to sell when it is needed. Normal these contracts come with an upfront payment, but the central counterpar- ties (CCPs) that facilitate these trades are now demanding up to 80% of the
forecasts have repeatedly been downgraded.
“The ZEW index for the eurozone fell again in September, as the assessment of the current situation and the outlook for the next six months deteriorated further, which reaffirms our call for an incoming
the series in January 1994,” Oxford Economic said.
Fiscal support to protect households and businesses from ballooning energy prices generally amounts to around 2-3% of GDP across Central and Eastern Europe (CEE) but is already in double digits in some countries. Economists are already saying the relief packages will cushion the blow, but they cannot stop a recession.
Governments have been rolling out a raft of measures to counter the crisis.
In Poland, the government slashed VAT and excise duties on fuel and energy
at the start of this year, provided cash handouts to households, and has approved a price cap on heating for the upcoming winter. The total cost of this support amounts to around €11bn (1.7% of GDP), reports Capital Economics.
In Romania, the government has set caps on electricity and gas prices since last November and said it will continue to do so until August 2023. It has also introduced a series of grants, vouchers and subsidies for vulnerable house- holds and industries.
The Czech government has been slower to respond but is now acting
on a noticeable scale. Last month it approved an energy subsidy for house- holds and businesses and said that it has set aside a total of €7bn (2.5% of GDP) to deal with soaring prices.
“The picture is even worse in Germany, where the outlook has deteriorated even more significantly”
contract price ahead of time, creating a liquidity problem that small traders can’t cover and banks are increasingly unwilling to credit. The prospects of a default are growing and if a big trading house goes down that would lead to a system-wide liquidity crisis, says the Bruegel think-tank.
Several large utility players have already got into trouble. The German govern- ment is preparing to bail out its major utility company, Uniper, with a rescue package worth €15bn; the Élysée has announced a €10bn package to finalise the nationalisation of Electricité de France (EDF); and in early July CEZ, Czechia’s biggest utility, signed a credit agreement with the country’s finance ministry for up to €3bn, providing liquidity to the company.
European governments have been forced to step into the breach with massive bailout packages and nationali- sations. Since September 2021, govern- mental interventions have spanned between 0.1 and 3.6% of GDP and amount to a total of around €230bn in the first half of this year. That number is set to as much as double before the end of this year.
Economic impact on Europe
The economic war with Russia is already weighing heavily on Europe’s economy. The two main business polls, ZEW and IFO, have both tanked in recent months as fears of a Europe- wide deep recession build and growth
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recession this winter. The picture is even worse in Germany, where the outlook has deteriorated even more signifi- cantly,” Oxford Economics said in a note. “The index for the eurozone now stands at -60.7, down 5.8 pp from August.”
Runaway inflation is dragging growth down as central banks across the region aggressively hike rates in an effort
to regain control of prices. August inflation remained high in Germany and Spain, picking up to 7.9% year on year and 10.5% y/y respectively, driven up by food and energy hikes.
“Among the categories that drove the increase are housing (up 24.8% y/y), boosted by surging electricity prices, and food prices whose rate was 13.8%, the highest since the beginning of
Eurozone: Industrial production