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Russia’s Economic War Hits Europe’s Factories

High energy costs are hurting manufacturing and continue to fuel consumer-price inflation!

European Union factory output dropped 2.3% in July on the month.

Tweet on the Negative outlook of the German economy 22/23

Factory production in Europe is faltering as the economic war between Russia and the West begins to chip away at the continent’s economic foundations.

European Union data out Wednesday showed euro-zone factory output had dropped by 2.3% in July from a month earlier, the first decline since March, partly reflecting cutbacks in energy-intensive sectors.

Since invading Ukraine,

Russian President Vladimir Putin has weaponized the country’s vast stores of energy to undermine European support for Kyiv.

This month, Russia turned off the taps to a key natural-gas pipeline, Nord Stream. As Wednesday’s data showed, Moscow’s choking of energy supplies to Europe has driven up production costs, making it harder for some manufacturers to operate economically.

Most economists expect Europe’s main economies to contract in the coming months, with the severity of the recession dependent on average temperatures, progress in storing natural gas from non-Russian suppliers and the impact of government efforts to help households and industry.

“The darkest cloud on the horizon is clearly in the eurozone,” said Marcelo Carvalho, global head of economics at BNP Paribas.

Europe’s factories aren’t alone in seeing a surge in costs as a consequence of the war. European households are also facing sharply higher utility bills.

Natural gas, which households use mainly for heating, and power have seen the biggest rises lately, while gasoline prices have eased. That helped push the U.K.’s annual rate of inflation down to 9.9% in July, from 10.1% in June, according to official data out Wednesday.


Source: WSJ/IMF/BNP 
Image: EU flag