One week before the anniversary of the start of the Russian invasion of Ukraine, the price of natural gas from the Dutch TTF hub fell below 50 euros per megawatt-hour, the lowest level in the last year and a half, and 80 percent lower than it was in the same week last year. As one analyst put it, ‘climate change has saved Europe’, alluding to the unusually warm winter that prevented gas storage from being emptied this winter.
Now that the war in Ukraine is entering its second year and it is quite clear that there is no end in sight even in the longer term, there are two basic scenarios at play for the European, and also Croatian, economy this year. According to the first, the war escalates and spreads to other countries; the consequences would be a new round of strong price increases for energy and raw materials, the need for huge state investments for defense purposes, and the organization of life and business in semi-war conditions. According to the second scenario, the situation in Ukraine calms down, the remaining broken links in the supply chains are patched up, and life and business in Europe continue as usual. However, this ‘as usual’ should be understood conditionally because Europe, like Croatia, did not enter this year from a position of a clean start, but with the burdensome legacy of poor indicators from last year.
The first scenario is still deeply buried in the drawers of institutions that need to have an answer to it and is still a taboo topic for the public, which does not mean that (some) of its parts do not spill over into the second scenario, which we could call relatively optimistic, but with great caution.
A touch of optimism comes from the ‘Winter Forecasts’ published by the European Commission last week, which stated that the European Union as a whole, as well as the eurozone, narrowly avoided the recession that was expected at the end of last year. Because of this, as well as the further decline in energy prices, the Commission has raised its expectations for this year’s economic growth in the Union to 1.6 percent, and in the eurozone to 0.9 percent (the previous forecast spoke of an expected growth of 0.3 percent in both groups of countries).
Moderate Growth Expectations in the EU This Year
– As much as we are pleased that Europe managed to secure gas supplies without Russia this winter, we cannot assume that uncertainties with energy prices will no longer exist just because we have largely excluded Russia from the gas supply chain. This is a significant challenge for the manufacturing industry and energy suppliers in Europe. That is why we are somewhat more moderate in our growth expectations in the EU this year – commented Goran Šaravanja, the chief economist of HGK, in his weekly review, agreeing with the Commission’s estimate that inflation in the Union this year could be 6.4 percent, and in the eurozone 5.6 percent.
