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Germany faces ‘difficult decisions’ in gas shortage
Germany would be confronted with “difficult societal decisions” in the event of a gas shortage, its economy minister said Friday, as Russian supplies of the fuel dwindle.
“When there is not enough gas some industries that need gas will have to be turned off,” Economy Minister Robert Habeck told magazine Der Spiegel, AFP reported.
On Thursday, Habeck raised the alert level under Germany’s emergency gas plan after supplies of gas from Russia were slashed, bringing Europe’s economy one step closer to rationing.
Russian energy giant Gazprom last week reduced deliveries via the Nord Stream pipeline to Germany by 60 percent, attributing the move to a delayed repair.
Germany has dismissed the gas company’s technical justification, seeing a “political” motive behind the decision: Retaliation for the West’s support for Ukraine following Moscow’s military operation.
The reduction in supplies has put Germany in a position it had never been before, Habeck said, with both German industries and households both reliant on energy imports to meet their needs.
Without enough gas, Germany would “have to make difficult societal decisions”, Habeck said, adding that there were “no good decisions only less wrong ones”.
The consequences for some sectors could be “catastrophic” with the effects felt for “a long time”, the minister said.
Germany has mandated for its gas storage facilities to be 90 percent full by the beginning of December.
But projections put forward by Habeck’s ministry on Thursday showed the target was unlikely to be met if gas flows continued at their new lower level.
In response to the supply squeeze, Germany has reactivated mothballed coal power plants to take the burden off gas.
Habeck, a member of the German Green party, called the coal restart “painful”.
The “half step back” meant Germany would need to make “bigger steps” forward in future to wean itself off fossil fuels and onto renewables, he said.
The government has also encouraged energy savings among private households and industry to mitigate the impact of potential shortages.
Germany’s 41 million households turning their heating down in winter a little would make a big difference, Habeck said, while warning that not everyone would be able to save more.
Under European rules, a gas rationing plan would see households prioritised over industry, a situation not designed for long-term shortages, he said.
Oil up more than $1 but set for second weekly drop on recession fears
Oil rose by more than $1 a barrel on Friday supported by tight supply, although crude was heading for a second weekly fall on concern that rising interest rates could push the world economy into recession.
U.S. Federal Reserve Chair Jerome Powell said on Thursday the central bank’s focus on curbing inflation was “unconditional”, adding to fears about more interest rate hikes that have weighed on financial markets, Reuters reported.
Brent crude was up $1.42, or 1.3%, at $111.47 a barrel by 0952 GMT, while U.S. West Texas Intermediate (WTI) crude gained $1.29, or 1.2%, to $105.56. Both benchmarks were heading for a second weekly decline.
“Increasing recession fears appear to be prompting a culling of heavy speculative long positioning in both contracts, even as in the real world, energy tightness is as real as ever,” said Jeffrey Halley, analyst at brokerage OANDA.
Oil came close this year to an all-time high of $147 reached in 2008 as Russia’s military operation in Ukraine exacerbated tight supplies just as demand has been recovering from the COVID-19 pandemic.
Crude has gained support from the almost total shutdown of output in OPEC member Libya due to unrest. The Libyan oil minister said on Thursday the National Oil Corporation chairman was withholding production data from him, raising doubts over figures he issued last week.
Stephen Brennock of oil broker PVM said recession fears dominated sentiment, adding: “That being said, the consensus remains that the oil market will see high demand and tight supply over the summer months, thereby limiting the downside.”
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, meet on June 30 and are expected to stick to an earlier plan to accelerate slightly hikes in oil production in July and August, rather than provide more oil.
The latest U.S. oil inventory figures, which will give a snapshot of supply tightness in the top consumer, have been delayed to next week.
African economies see reasons for optimism despite crises
From COVID-19 to the war in Ukraine, external crises have put pressure on African economies, but many on the continent see opportunities to undertake radical reforms.
Africa already showed some resilience during the pandemic as its economic contraction was less severe than in the rest of the world, shrinking by two percent compared to 3.3 percent globally in 2020, AFP reported.
While Russia’s military operation in Ukraine is weighing on the world economy, Africa faces a better outlook again in 2022.
“Africa is headed towards growth of around 3.7 percent, while in North America and Europe there is a real risk of recession”, said economist Lionel Zinsou, former prime minister of Benin. The conflict in Europe has fuelled a surge in global inflation, but Zinsou said growing prices for raw materials will compensate for the higher costs of imports in Africa.
Another positive signal is that investor confidence in Africa is up to a higher level than that before the pandemic. Of 190 business owners in Africa who were questioned, 78 percent voiced confidence about their development prospects – compared to 61 percent before the COVID-19 crisis, according to a report by the Deloitte accountancy firm.
The fallout from the war in Ukraine, however, remains a threat as it has driven up prices for wheat and other key agricultural products, sparking fears of famine in some countries.
“We are concerned about the slowdown in global growth and the availability for Africa of certain products such as wheat or fertilisers”, Ivory Coast President Alassane Ouattara said during the Africa CEO Forum in Abidjan this month.
Makhtar Diop, general director of the International Finance Corporation (IFC), a branch of the World Bank, said African economies “have taken a hit and haven’t regained their pre-2019 growth rates”.
“The situation remains particularly difficult with inflation which disproportionally affects the poorest populations,” he added.
“We lose a good part of our crops each year due to lack of electricity and cold chain,” said Zinsou, referring to the transport of goods that need to be kept cool across the supply chain.
These losses could be reduced through infrastructure investment, he added.
For Diop, “every crisis is an opportunity to transform the situation structurally.”
Some countries have stepped up the pace in recent years. Ivory Coast has built new cashew processing plants, while Nigeria is building a major oil refinery in Lagos.
In Guinea, foreign companies have recently been tasked with building bauxite processing plants.
Georges Wega, deputy director of international banking networks for the Africa region at France’s Societe Generale financial group, believes that Africa has “a lot of potential” to finance its essential projects.
The African Continental Free Trade Area (AfCFTA), which aims to harmonise customs tariffs across the continent, which is gradually happening, holds out hopes of boosting intra-African trade.
Norway central bank makes largest rate hike in two decades
Norway’s central bank raised its benchmark interest rate by 50 basis points on Thursday, its largest single hike since 2002 and did not rule out making further increases of this size as the country seeks to control inflation.
Norges Bank’s monetary policy committee raised the sight deposit rate to 1.25% from 0.75%, exceeding its own forecast made in March of a hike to 1.0%, Reuters reported.
“Based on the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further to 1.5% in August,” Governor Ida Wolden Bache said in a statement.
“A faster rate rise now will reduce the risk of inflation remaining high and the need for a sharper tightening of monetary policy further out.”
Of the 20 economists polled by Reuters in advance of Thursday’s announcement, 14 had predicted Norges Bank would hike by 25 basis points (bps) while six said a 50 bps increase to 1.25% was the most likely outcome.
For the rest of 2022, Norges Bank’s plan is to raise rates by 25 bps at each of its four remaining policy meetings, although raising them in larger increments may also be an option, Bache told a news conference.
“I can’t rule out that future rate hikes could be larger than 25 bps,” she said.
The Norwegian currency, the crown, rose to 10.46 against the euro at 0925 GMT from 10.51 just before the rate announcement.
The central bank predicted the policy rate could rise to 3% by mid-2023, having previously pointed to a rate of 2.5% by the end of that year.
“(This) underlines how stressed central banks are over inflation,” tweeted Torbjoern Isaksson, chief analyst at Nordea Markets in Sweden.
Capital Economics, which correctly predicted a 50 bps hike ahead of Thursday’s announcement, said it believed the policy rate was unlikely to rise as much as the central bank now plans.
“We are sticking to our current forecast of rates topping out at 2.50% next year, in part because Norwegian households are highly sensitive to higher interest rates. But the risks are to the upside,” it wrote.
Norges Bank cut its growth forecast for the Norwegian mainland economy, which excludes oil and gas output, to 3.5% for 2022 from 4.1% seen in March.
It raised its core inflation forecast for 2022 to 3.2% from 2.5%, and lifted the prediction for 2023 to 3.3% from 2.4% seen three months ago.
The central bank targets core inflation of 2.0% over time.
Central banks globally are struggling to contain surging prices in the wake of the COVID-19 pandemic and Ukraine war, leading to a 75 basis point U.S. Federal Reserve rate rise last week, a surprise hike by the Swiss National Bank and new policy tools at the European Central Bank (ECB).
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