Mon. Jan 30th, 2023

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

November 22, 2022

Bad news does not come out of the blue; politicians only make it worse! In 2016, US President Trump started with MAGA and disrupted global economy with tariff wars. Then COVID-19 Global Pandemic devastated the global economy and supply chains for the past three years.

Unfortunately, US keeps fighting the trade war with China after President Biden took office in 2021. Then Russia invaded Ukraine on February 24, 2022. The war was preventable, but Ukraine was emboldened by the promises from West with “unwavering” supports. US led sanctions against Russia has caused unprecedented energy shortage in Europe. Yet, Ukraine war will enter the 10th month with no end in sight.

Ukraine is suffering nationwide blackouts, without heating and hot water; how will Ukrainians survive this winter? Spring is four months away! Further, Ukrainians are also suffering direct casualties from enemy fires day in and day out.

However, Europeans outside Ukraine are also “quietly” suffering from insufficient energy supplies. Most Europeans are facing rolling black outs, insufficient heating, and lack of hot water supply. Even though they do not have to face life threatening explosive shells, rockets, drones, and missiles, but they have to shoulder unaffordable high energy costs. They are miserable!

Lack of affordable energy further slows down the economic outputs. It becomes a deadly downward spiral: high energy cost causes economic slowdown; economic slowdown causes energy less affordable…

Of course, good news and/or bad news impacts each nation or region differently. Europe nations face off Russia directly and responds to the Ukraine war with severe sanctions. Of course, Europe suffers the consequences more than the US and Asia. Nations in Europe, with different governments and leaders, also suffer differently. The UK has been in turmoil after the “successful” Brexit; recently experienced three prime ministers in three months! Germany significantly benefitted from Russian energy supply in the past, so it is paying a heavy price for alternatives now.

An end to the senseless Ukraine war will not resolve all issues instantly. But it will stop the “bleeding” so that nations can focus on rebuilding their economies!

BBC: UK faces worst downturn of any advanced economy, OECD says

The UK will contract by more than any other nation in the G7 group next year, it said.

Growth in the US and the eurozone will be weak, but Germany is the only other major economy expected to shrink.

The OECD forecasts a “significant growth slowdown” globally in 2023.

Thanks to the strength of emerging economies, the world economy will grow by 2.2% next year, the OECD’s latest report predicts.

But the war in Ukraine was affecting economies unevenly, the OECD said, with European countries bearing the brunt of the impact on business, trade and the spike in energy prices.

The OECD expects the UK’s economyto shrink by 0.4% in 2023 to be followed by shallow growth of just 0.2% in 2024.

By contrast, last week the UK’s Office for Budget Responsibility (OBR) predicted the UK would shrink by 1.4% next year, although it also predicted stronger growth, of 1.3% in 2024. The OBR said that would lead to the biggest drop in living standards on record.

Earlier this month the Bank of England predicted the downturn could last for two years.

Germany’s gross domestic product (GDP) is expected to fall by 0.3%, the OECD report says.

The OECD, an intergovernmental body that focuses on economic policy, lays some of the blame for the UK’s poor performance on the Energy Price Guarantee, the scheme to support household and business energy bills.

Targeted help

The UK government is moving away from universal support for energy bills after this winter, the prime minister’s spokesman pointed out.

“We’re taking a different approach post-April to the energy support, targeting it towards the most vulnerable,” he said.

Labour’s shadow chief secretary to the Treasury Pat McFadden said: “We are forecast to be the only OECD economy that will be smaller in 2024 than it was in 2019.

“This is the Tory doom loop. A low growth spiral leading to higher taxes, lower investment, squeezed wages and poor public services.”

If you think the world’s energy crisis is bad right now, next winter will be worse, says the OECD, whose new global outlook predicts bad times ahead

Vivienne Walt

Tue, November 22, 2022 at 2:00 AM

With millions of Americans and Europeans bemoaning the huge rise in cost to heat their homes and power their businesses during the bitter cold months, they ought to brace themselves for even worse times ahead—next winter.

“In Europe, if it is a cold winter this year, it will be complicated. But we are more concerned about next year,” says Álvaro Santos Pereira, chief economist for the Organization of Economic Cooperation and Development. “Especially in the gas markets, replacing the Russian gas is going to be a challenge.”

This year’s predictions are sobering. Pereira says global growth in 2022 will rise by about 3.1%—a relatively optimistic outlook, given the severe crisis that has hit the world since Feb. 24, when Ukraine was invaded by Russia—a global energy powerhouse until then.

But Pereira says that the true scale of the world’s economic woes will only become clear in 2023, when the OECD predicts “a significant slowdown” for the global economy to 2.2%, and then a “little bit of a rebound in 2024” to about 2.7%.

U.S. growth just 0.5% next year

The organization estimates the U.S. economy will grow by 1.8% this year, and just 0.5% next year, before recovering slightly in 2024 to 1% growth.

Since the U.S. exports more energy than it imports—including liquified natural gas (LNG) to Europe, to replace some of Russia’s supplies—the country has been shielded from the full economic impact of the nine-month Ukraine war. Even so, Americans face high inflation and a weakening housing market, and companies still face a tight labor market and rising wages. “Largely as a result of the war, domestic food and gasoline prices remain elevated compared with the pre-pandemic period,” the report says.

Perhaps the greatest pain might be felt by Russia itself, which will face “a massive recession, not only this year, but next year and the following,” Pereira said. “It is difficult to see how we go back to the world, or the energy world, that existed before the war.”

Now, across the world, economies are reeling from the effects of the Ukraine war, with an energy crisis that Pereira says is the most severe since the 1970s. Yet as winter bears down on Europe, the full scale of the crisis has been masked for now, thanks in part to unusually warm weather in October and November, and the fact that several governments in the 27-country European Union have opted to cap households’ energy prices for the winter. In some countries, wholesale gas prices are now higher than retail prices. Some EU countries have also halted gas exports to countries like Pakistan, choosing instead to fill up their own storage tanks. In parts of the EU, tanks are about 95% full.

Europe still needs Russian gas

But Pereira warns that by next summer, Europe will face a raft of problems.

By then, it might have emptied its storage tanks, and Russian gas will no longer flow to the continent; until now, Russian gas tankers have continued to sail to European ports, but the country has cut its piped gas, in retaliation for Western sanctions against Vladimir Putin.

Before Putin invaded Ukraine, the EU was heavily dependent on Russia’s energy supplies, with about 40% of its natural gas coming from the country. Despite widespread outrage, it stopped short of sanctioning Russian gas, and the sharp drop in supplies to Europe has been the choice of Putin, not Europe.

We did not put an embargo on Russian gas, because we cannot do this,” French energy consultant Thierry Bros told a briefing earlier this month with the Anglo-American Press Association. He says Europeans need “the minimum amount” of about 7% of its gas consumption coming from Russia.

Europe to be hit hardest in global slowdown -OECD

Leigh Thomas

Tue, November 22, 2022 at 2:00 AM

PARIS, Nov 22 (Reuters) – The global economy should avoid a recession next year but the worst energy crisis since the 1970s will trigger a sharp slowdown with Europe hit hardest, the OECD said on Tuesday, urging central banks to keep hiking interest rates.

The OECD said the global slowdown was hitting economies unevenly, with Europe bearing the brunt as Russia’s war in Ukraine both hits business activity and drives an energy price spike.

The United States economy was set to hold up better, with growth expected to slow from 1.8% this year to 0.5% in 2023 before rising to 1.0% in 2024. The OECD had previously expected growth of only 1.5% this year in the world’s biggest economy and its estimate for 2023 was unchanged.

While many governments had already spent heavily to ease the pain of high inflation with energy price caps, tax cuts and subsidies, the OECD said the high cost meant such support would have to be better targeted going forward.

(Reporting by Leigh Thomas; Editing by Catherine Evans)

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