Gas. Latest Big Effects

Six months after the start of the war in Ukraine, the effects on the economy are becoming more and more felt. Portugal is not oblivious to the global trend.

“For Portugal and other distant countries, the main effects of the war were to reinforce the price shock of the last phase of the epidemic. What is now called “inflation” and the associated rise in interest rates are the main symptoms. The period of sickness with abnormally low rates has ended,” João Cesar das Neves told Naser do Sol.

The latest impact on the Portuguese economy was the announcement by EDP Comercial and Galp regarding an increase in gas prices from October. The CEO of the company said that EDP Comercial is announcing an increase in the price of gas for families by an average of 30 euros per month, plus fees and taxes, which will equate to another five to seven euros in fees and taxes. , Vera Pinto. On the same day, it was Galle’s turn to follow suit, not revealing, however, the value of the increase.

And what is the reason? The electric company justifies the decision by the rise in gas prices on world markets in recent months, a situation exacerbated by the war in Ukraine and restrictions on Russian gas supplies, which also led to higher prices in other markets, such as, for example, in gas from Algeria. Galp had already raised natural gas tariffs for domestic customers on April 15, relying at the time on monthly increases of up to three euros for major natural gas categories, and again in July, an increase of about 3.60 euros. group of clients.

The announcement prompted the government to move forward with measures to mitigate these effects, one of which is legal permission for families and small businesses to access the regulated market for this energy. “The prices in the regulated market will be less than half the prices of the suppliers who announced the increase. We really believe that with this change, many consumers will have a lower gas bill than the current one,” revealed the Minister of Environment, Duarte Cordero.

According to the official, this measure will be valid for a maximum of 12 months and may cover up to 1.5 million customers. Another measure relates to the re-launch of the Belhar Solidarity Program, for which it mobilized funding from the Environment Fund, noting that “two weeks ago I imposed a maximum selling price for gas bottles, a measure that protects more than two million consumers.”

Is the answer sufficient? Cesar das Neves admits that “the impact was rapid enough and uncertain to have a clear political response, and thus the criticisms are not clear. The only point on which to speak of the failure is to support the most disadvantaged groups, which were again the most affected and were not It has enough support.”

Paolo Rosa, chief economist at Banco Carigusa, admits that the government sought to mitigate the negative effects of the war on the most vulnerable population, but believes that with regard to “the harmful phenomenon of inflation, the executive could have gone further, that is, in terms of policy fossil fuel finance.

Energy with the most obvious effect

For Ricardo Evangelista, CEO of ActivTrades Europe, there is no room for doubt: “High energy prices were the most noticeable consequence of the invasion of Ukraine.” In addition, he states, it is also possible to point out “some disturbances in the markets of food raw materials, whose prices initially recorded significant increases”, adding that “this dynamic caused an acceleration of the rise in inflation and there was also a change in the European geopolitical balance, as Germany had to And some other countries to suddenly change their strategy in the field of energy ».

XTB analyst Henrique Tomé asserts that energy products and agricultural prices suffered from a price range, “adding to inflationary pressures that were already being felt at the time”. And while acknowledging that prices for most agricultural products have already returned to pre-war levels, on the energy side, upward pressures continue due to tensions between Russia and Europe over natural gas supplies.

“Russia has used natural gas as blackmail, given that the country is still an important partner in terms of gas supplies and about 40% of the natural gas that Europe imports comes from Russia,” he told Nasir. At the moment, that is the main concern of the markets – the risk of cutting off the supply of natural gas, which could have dire economic consequences for Europe.”

problematic hypertrophy

According to Paulo Rosa, inflation is the main negative impact on the Portuguese economy. The economist ensures that it would have been lower if the government had implemented an expansionary fiscal policy based on a greater reduction in taxes on imported fossil fuels, and the abandonment of a greater part of the ISP (Petroleum Products Tax), as well as the value-added tax, which falls on hydrocarbons.

And do the math: The Portuguese CEO’s ISP revenue rose 84.7 million in the first half of this year, compared to the same semester in 2021, to 1,608.6 million. Also in the same semesters, the value-added tax rose by about 25% from 7920.7 million to 10052.3 million euros.

The economist also says that growing concerns about tightening gas supplies from Russia and approaching winter will continue to pressure inflation in the Eurozone and may force the European Central Bank (ECB) into further monetary contraction, based on higher – higher expected interest rates. In light of this scenario, the economic prospects in the eurozone are further deteriorating. In this context, the difficulties faced by the national economy and the Portuguese executive power are exacerbated ».

And he does not hesitate: “Fighting inflation and its vices is more important for the ECB than avoiding a recession. Therefore, this central bank insistence will be increasingly evident, even if it causes a fairly deep recession. It is also true that stagnation leads to deflation, and increases It reduces unemployment, reduces disposable income, slows household spending, and ultimately relieves pressure on prices.

Recession on the horizon?

Ricardo Evangelista leaves the door open to a “scenario that, before the end of the year, points to a recession in the eurozone.” He gives an explanation: “Inflation, especially in the energy sector, is expected to remain a problem. There is also the possibility that Russia will completely cut off gas supplies to Europe, which will exacerbate the already existing scenario of stagnation in the eurozone.”

According to this official, the prospects are not encouraging. The deterioration of the economic situation in the Eurozone will certainly force a review of economic objectives. The GDP growth target in particular may have to be revised.

Cesar das Neves is also skeptical about the future. “All this is still very uncertain, but it could be better than feared. Of course, it could also be worse.” Given this scenario, it recognizes the possibility of reviewing economic objectives.

Henrique Tomé also concludes that the outcome of this situation remains unknown, but recalls that “It is important to note that Russia is also suffering dire economic consequences from the war. The Russian economy remains isolated and the country does not have the financial capacity to continue to bear the costs of the invasion in Ukraine. »», while acknowledging the difficulty of advancing expectations, says that resolution of the conflict can largely amount to an agreement if there is space again for dialogue among all the states involved.

As for economic targets, the analyst says they may be revised again and possibly lowered, although “at this point it is difficult to move forward with the forecast, given that there are many uncertainties in the markets.” An opinion shared by Paolo Rosa, who argues that given everything that is happening “it is likely that the CEO will have to revise GDP growth and inflation projected for this year”.