Unconfident Consumers – The Effects of Energy Prices
If it wasn’t clear enough, the European economy is headed towards a recession. The economic scars caused by global pressures, along with neighbor Russia’s conflict with Ukraine have shown themselves in full form. The seasonality of these effects is a result of the energy sector being affected. The war has caused energy prices to skyrocket throughout Europe due to the weaponization of the energy markets by Russia, and although governments have tried their best to mitigate the effects, it’s now wintertime.
Winter brings greater demand for energy and considering how expensive energy is European households’ pockets are starting to become dry. With household energy prices up 41.5 percent in the last year, consumers have been forced to divert their money into paying energy bills as heating is needed in the winter. Along with this, the increase in energy prices is leading to inflation across most goods as, energy is needed to produce those items. Income isn’t rising to sustain the rise in expenditures, forcing families to spend less in the economy, and that’s the killer of the European economy. Data from October found that the European Union’s retail sales have fallen by 1.8 percent from the previous month, which is the greatest decline since July of 2021. Consumer spending is vital to the health of the economy, and we are witnessing a decline in services in the EU too. Despite this, the labor market is still strong over there, which could present problems when it comes to interest rates. Interest costs are another thing rising for European households, and the ECB could look to increase rates if necessary.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.