With gas imports from Nord Stream 1 dropping further at 20% capacity and the European gas price doubling since mid-June, the European outlook looks increasingly gloomy. A recession looks increasingly likely across all major economies (Germany, Spain, Italy, France). Moreover, the possibility of a complete halt of Russian gas supplies to Europe, and the sequential energy crisis only push risks towards the downside.
At the country level, we have slashed the German Industrial Production forecast since June, as the gas price rallies, and the automotive production recovery is further postponed due to weakening demand. In fact, July’s ifo Business Climate Index reached its highest level since April 2020 in terms of business pessimism for the coming months. We currently forecast Germany to lose roughly 6% of its 2022-2026 industrial production due to the war’s impact on energy prices (see Figure 1). To add to the bearish sentiment, the Eurozone manufacturing PMI dropped below 50 for the first time in July, which signals a contraction in m/m manufacturing activity.
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CRU experts discussed the impact of the war in Ukraine on commodity markets in a recent webinar. Experts from all major commodity areas joined CRU’s Head of Economics and an energy specialist to discuss markets one month on from the invasion of Ukraine. The webinar is available to watch on-demand here.Explore this topic with CRU