Of the inflationary shock that is coming, the sectors that will be most affected and the chances of seeing significant interest rate increases and recession in Europe, is the international renowned analyst Lorenzo Kontonium. The Italian economist and professor of LSE estimates that the damage has already been done for the global economy, since even if the war is over soon, traffic in the Straits of Hormuz will be delayed to normalise.
He predicts that with the assumption that oil and gas prices will remain high by the end of the year, we could expect 3-4 quarters of mild recession or stagnation of GDP growth, with inflation approaching 5%.
The worst possible scenario, Mr Kontonium suggests, would be the imposition of a bulletin on energy and energy products. This would cause chain reactions to production and push prices much higher, in ways that are likely difficult to predict.
Interview with Constantine Mariolis
How big do you think the upcoming inflationary shock will be? What branches will be more affected within the next year?
It is difficult to make a safe prediction of the magnitude of inflationary shock, as no one has a glass sphere to see how the conflict in the Middle East will develop. However, if we make a reasonable assumption that the war will last until the end of July and then turn into a prolonged truce or a low-intensity conflict (I dare not say «peace»), oil and gas prices will move upwards for another two months and then stabilise for some time before they begin to retreat in 2027.
The damage, however, has already been done as it will take time to restore smooth traffic in the Straits of Hormuz and also in the production of oil, gas and other critical goods. Inevitably, the sectors that will receive the strongest blow are tourism, transport, food (because of the cost of fertilisers) and generally energy-intensive sectors, particularly where producers will not be able to fully pass on the cost increase to consumers.
Based on your analysis and your expectations, when do you realistically think that war could reach a sustainable end and what variables should markets closely monitor?
As I have said, it is difficult to predict safely, but I believe that the high intensity conflict will end within the next two months. The Straits of Hormuz undoubtedly constitute the basic variable that everyone should monitor. My assessment is that the situation will not return quickly to normality and that oil and gas prices will remain high for a long time.
How deep and long do you expect the economic consequences of the war on Europe, particularly in terms of growth, energy security, ECB interest rates and consumer purchasing power to be?
With the assumption that oil and gas prices will remain high by the end of the year, we could expect 3-4 quarters of slightly negative or stagnant GDP growth, followed by gradual recovery. As we have not yet seen the shift of energy prices (+50%-55%) to non-energy goods and services, inflation will soon be close to 5% and will likely peak slightly above this level by the end of the year. This will probably push the purchasing power of households.
The ECB will have no choice but to increase interest rates. I expect the first increase in June by 25 basis points, then 50 basis points in July and September and a final increase by 25 basis points in December. This will lead the interest rates to 3.50%, i.e. a total increase of 150 basis points.
As inflation will decline within 2027, the ECB will begin a gradual process of rebalancing interest rates to balance levels, but interest rates will probably not have fully returned to these levels by the end of 2027, thus slowing recovery. Europeans will eventually push for energy transition and large investments to reduce dependence on foreign producers, but that will take years.
Ποιο είναι το χειρότερο δυνατό σενάριο για τις τιμές του πετρελαίου αν η σύγκρουση κλιμακωθεί περαιτέρω; Πιστεύετε ότι η Ευρώπη θα μπορούσε να βρεθεί αντιμέτωπη με πραγματικές ελλείψεις καυσίμων τις επόμενες εβδομάδες, όπως υποστηρίζουν ορισμένοι αναλυτές;
Το χειρότερο δυνατό σενάριο θα ήταν η επιβολή δελτίου στην ενέργεια και στα ενεργειακά προϊόντα. Αυτό θα προκαλούσε αλυσιδωτές αντιδράσεις στην παραγωγή και θα ωθούσε τις τιμές πολύ υψηλότερα, με τρόπους που πιθανότατα είναι δύσκολο να προβλεφθούν.
Καταλαβαίνω ότι οι πρώτοι περιορισμοί ενδεχομένως αφορούν σε εξειδικευμένα χημικά/βιομηχανική υλικά, όπως π.χ. κόλλες οι οποίες είναι σημαντικές στην παραγωγή ενός ευρέος φάσματος βιομηχανικών προϊόντων. Στο βασικό μου σενάριο, δεν αναμένων ελλείψεις στην παραγωγή ενέργειας, καθώς ε διαφορετική περίπτωση η ευρωπαϊκή οικονομία θα εισερχόταν ε βαθιά ύφεση. Παρ’ όλα αυτά, δεν μπορούμε να αποκλείσουμε να υπάρξουν ελλείψεις σε συγκεκριμένες γεωγραφικές περιοχές ή ορισμένα προϊόντα.
