Europe May See Forced De-Industrialization As Result Of Energy Crisis
- European industries including ferroalloys, fertilizer plants and specialty chemicals are shutting down as a result of the ongoing energy crisis.
- Certain industries may not come back, even if the energy crisis eases.
- An increasingly tight regulatory environment is another reason for de-industrialization in Europe.
The European Union has been quietly celebrating a consistent decline in gas and electricity consumption this year amid record-breaking prices, a cutoff of much of the Russian gas supply, and a liquidity crisis in the energy market.
Yet the cause for celebration is dubious: businesses are not just curbing their energy use and continuing on a business-as-usual basis. They are shutting down factories, downsizing, or relocating. Europe may well be on the way to deindustrialization.
That the European Union is heading for a recession is now quite clear to anyone watching the indicators. The latest there—eurozone manufacturing activity—fell to the lowest since May 2020.
The October reading for S&P Global’s PMI also signaled a looming recession, falling on the month and being the fourth monthly reading below 50—an indication of an economic contraction.
In perhaps worse news, however, German conglomerate BASF said last month it would permanently downside in its home country and expand in China. The announcement served as a blow to a government trying to juggle energy shortages with climate goals without extending the lives of nuclear power plants.
“The European chemical market has been growing only weakly for about a decade [and] the significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains,” said BASF’s chief executive, Martin Brudermueller, as quoted by the FT, in late October.
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