Page 55 - RusRPTSept22

the winter without the need for hard rationing even if Russia were to stop gas flows. The flipside of that: This comes in part as a result of the reduction in gas consumption, which is likely already having an impact on economic activity.
But even if we are less concerned about scarcity of energy, the brutal rise in gas prices will have severe implications for European industry. While there is growing anecdotal evidence showing some companies are adjusting to the situation better than expected – either by replacing gas as an energy source or by being able to maintain production while reducing gas consumption – with gas prices more than 10 times above the average of the past decade there is no amount of mitigation that can fully absorb a shock of this size.
The European manufacturing sector will experience a recession over the coming quarters, but there will also be implications for households. The increase in gas and electricity prices will hit consumers hard, and the magnitude of the price rises makes further government intervention very likely. The shape and size of those interventions are unknown at this point, and will vary country to country, but the measures put in place over the past months offer a template of what is likely to come.
August PMI figures showed the composite index for the eurozone was below the 50-point threshold that separates expansion from contraction for a second consecutive month, suggesting the euro area economy could be already in contraction. Activity in manufacturing continues to be below that in services but the slowdown is becoming more broad-based, and we are increasingly concerned about the impact of the energy price surge in the services sector as well. Meanwhile, the German ifo index showed business sentiment falling back to the levels seen during the pandemic in 2020.
55 RUSSIA Country Report September 2022 www.intellinews.com