Inflation normalizes, Europe has gas deposits full, and not Russian, but interest rates remain high

Goldring analysis of the world economy, one year after the Russia-Ukraine war.

24 February 2022 will go down in the history books as the day Russia attacked its neighbor Ukraine, triggering a conflict that has caused a series of negative economic knock-on effects that have affected the entire planet, which has already been ravaged by a health crisis unparalleled in the last century since 2020.econ

How an isolated conflict in Eastern Europe, between just two countries, can affect the economy of an entire planet is easy to explain, looking at the combatants. A classic war of traditional weapons, destruction, loss of life and territorial annexation between two world leaders in strategic markets – Russia, which dominates the energy market, and Ukraine, a recognized leader in the export of grain and agricultural products – could not fail to have an impact on the global economy, according to an analysis by Goldring specialists.

Beyond the shock of the outbreak of war in Europe, the first and most visible effect, felt by the entire population of the planet, was the massive increase in prices, after Europe cut back on Russian oil and gas imports by a huge proportion, and the access of Ukrainian grain and food products to foreign markets was stopped or significantly obstructed due to the destruction of land and sea transport routes.

Sanctions on Russia have pushed eurozone and US inflation to historic levels

As expected, Russia’s invasion of Ukraine has resulted in significant international sanctions on Russia’s economy, which have been reflected in a shortage of some commodities on the world market and have obviously made them more expensive.

According to Goldring analysts, by early 2022, oil and gas prices were already high due to the impact of the pandemic on production and sustained demand as the post-pandemic global economy recovered, and the sanctions on Russia have only pushed inflation in the eurozone, the US and beyond to levels well above previous forecasts.

Therefore, the outbreak of war brought even more volatility to the commodity market and we witnessed Brent oil and gas prices reach a new high in 2022 since 2008, while the price of wheat and corn traded near historic record levels.

This volatility was immediately reflected in the level of inflation both directly and through its influence on other components of the consumption basket and led to more aggressive actions by Central Banks and moderation of economic sentiment. All these factors were reflected in the stock and bond markets.

Inflation in the Eurozone was well above expectations in 2022, and although we see in 2023 that it is starting to normalize, it is still at high levels, which will also keep interest rates high in the immediate future.

Europe is no longer reliant on Russian gas and has full gas storage

At the same time, as a result of the conflict, the European Union has sought to reduce its dependence on Russian gas, which has been offset by a surge in imports of liquefied natural gas, mainly from the US.

“If in 2021 about half of EU gas imports came from Russia, in November 2022 the percentage was 12.9%. For the period January – November 2022, Russia had a 25% share of EU gas imports, while Norway had 25% and Algeria 12%. In addition to the latter two, liquefied natural gas imports, mainly from the US, Qatar and Nigeria (26%), provided over 60% of imports,” explained Goldring analyst Claudiu Demian.

Gas price dynamics have been influenced by a mix of factors, including the favourable climate context, the high degree of gas storage in the EU, and the EU’s efforts to identify alternative sources of supply, coupled with price caps. Both the end of 2022 and the beginning of 2023 showed that Europe has a high degree of stored gas compared to historical levels over the last 10 years.

“As far as stock and bond markets are concerned, macro factors will continue to dictate their trend in the short to medium term. A slowdown in interest rate hikes by central banks, coupled with a downward trend in the economy over the coming period, could positively influence bond markets, which can still represent a good opportunity for portfolio diversification,” explained the Goldring specialist.

As for the equity market, although it is difficult to say how it will perform in the short term, equities will outperform the rest of the asset classes on a long-term basis, which is why long-term investors can find companies with solid underpinnings at attractive trading prices in the markets.

analysiseconomyEuropeEurozonegas depositsGoldringinflationinterest ratesRussiaRussianukrainewar
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