Europe Might Slide Into Recession, EU Seeks $140bn Energy Subsidy For Consumers
The S&P Global Eurozone Composite Output Index, a measure of economic productivity in its private sector, fell to an 18-month low in August at 48.9 according to S&P Global. Many citizens are reportedly struggling to cope with climbing energy costs which has ushed the eurozone private sector into contractionary territory.
Reuters reported that the EU sought to raise more than $140 billion from energy firms to help insulate households and businesses from soaring prices that could trigger a recession and bankruptcies.
“These higher prices ramin a dominant driving force of inflation,” the Chief Economist of the European Central Bank was quoted as saying by Reuters.
The S&P Global/BME Germany Manufacturing Purchasing Manager’s Index dropped to a 26-month low of 29.1 in August which was mainly a result of “sustained sharp downturn” in new orders.
This caused production levels and factory job creation to recede. Germany’s services sector faced a second consecutive month of activity decline as employment growth fell to an 18-month low.
“The PMI surveys signal that the euro area is entering recession earlier than we previously thought, led by its largest economy Germany, and we now see the euro area ‘enjoying’ a longer, three quarter recession,” said Peter Schaffrik of the Royal Bank of Canada.
The EU’s second largest economy, France, saw production levels plummet for the third consecutive month even as inflation reduced due to firms buying fewer inputs. Its service sector faced declines in new orders.
EU governments have reportedly responded with measures such as price caps on consumer electricity and gas prices, credit and guarantees to power providers at risk of collapse etc.
European Commission President said to the European Parliament: “EU member states have already invested billions of euros to assist vulnerable households, but we know thus will not be enough.”
France has announced new energy price caps for 2023, Denmark prepared temporary ceilings on energy bills and Germany’s largest importer of Russian gas, Uniper has said that the government could take a controlling stake to help it cope with the crisis.
A report by non-profit, More In Common, revealed that only 20% of Germans were “coping fine” with rising prices just as only 5% could manage in France and Poland.
Germany has announced a $64.3bn spending plan to protect citizens even though some economists do not think it was effective. Commerzbank chief economist Joerg Kraemer told Reuters:
“The relief package cannot change the fact that Germany has become poorer as a net importer of energy. Companies have to cut back on the use of energy, which has become expensive, and cut their production accordingly.”
