LONDON (Business Insider) - Europe’s major economies will face contractions in 2023 as energy prices continue to grow more expensive amid a worsening crisis, according to Amrita Sen, director of research at Energy Aspects.
Due to higher natural gas prices, European gross domestic product will decline by 1.4% next year, Sen told Bloomberg TV , noting that view is far worse than most forecasts. The IMF, for example, sees the eurozone economy growing by 1.2% next year.
“We are in a situation where demand continues to remain high, we are already seeing demand rationing in the industrial sector in Europe,” she said.
As prices continue to rally, Sen noted that expectations remain that Russia could move to cut off natural gas supplies entirely, which would push prices even higher and add greater economic pressure. A full cut-off, however, is not in Energy Aspect’s base-case scenario.
There’s already been an uptick in oil and coal use in Europe, as industries switch to energy substitutes to avoid sky-high natural gas prices, she added.
“The burden of high gas and oil prices will actually mean that we are going to see some steep contraction in the European economies next year,” Sen said.
On Thursday, Dutch TTF natural gas futures, the European benchmark price, hovered near 234 euros per megawatt hour, roughly 10 times higher than usual for this time of year.
A severe heat wave, Russia’s cuts to gas flows, and a period of drought for the Rhine river have all put pressure on prices in recent weeks.