In a strong act of support for Ukraine, European leaders are meeting in highly symbolic Versailles with the aim to reduce dependence on Russian gas by two thirds in 2022, layout a roadmap for increasing the pressure on Putin and mitigating the boomerang effect of the colossal sanctions package put in place.
US economy sees limited damage
US President Joe Biden walked the walk. Announcing a US embargo on Russian oil, gas and coal imports sent the already staggering oil and gasoline prices to new heights. The current forecasts show Brent reaching $ 180-200 a barrel this year, with WTI jumping more than 9% on the day of Biden’s announcement.
The US only imports 4% of its oil from Russia, and its GDP forecast was trimmed by only 0.4% for 2022. But it has already made several moves, including reaching out to Venezuela’s Maduro who hailed the “cordial” talks and showed his readiness to increase output.
What is the impact on growth in the eurozone?
Europe is not following the US and British global embargo. It has a lot to lose: it depends on Russia for about 40% of its natural gas and 27% of its oil.
Either way, the current prices and sanctions-induced panic in the markets bring a significant slowdown in EU economic growth. Barclays see the conflict as “a major stagflationary shock” and revised the EU growth forecast to 2.4% in 2022 and 2.1% in 2023, down from the 4% forecast projected by the EU Commission in February.
In the event of a complete stop to sourcing from Russia, the drop would be 4 points, bringing growth to zero for certain EU countries.
European leaders, however, are moving forward with a plan to become 80% independent in their natural gas needs by the end of 2022, turn to renewables, alternative suppliers and plug back nuclear plants.
Despite ongoing negotiations and a united front against Putin’s regime, the level of uncertainty remains exceptionally high. In its most recent forecast (in the dark), Deloitte sees central banks likely continue to increase interest rates. As for equity markets, the report states that “investors themselves currently think that this is a crisis which will still leave western economies continuing to grow this year”.
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