Energy prices at record levels - Europe's economic problems may worsen
Wholesale energy prices across major economies in continental Europe rose to their highest levels in more than a year, dealing a fresh blow to the region's businesses already struggling with weak demand and sentiment fragile consumers.
Average core wholesale energy prices in Germany, France, the Netherlands, Spain and Poland rose to their highest levels in at least 20 months so far in November, according to energy market data compiled by LSEG. With European energy use set to peak over the coming months due to higher winter heating demand, energy costs could rise further.
That could create headwinds for regional economies that have struggled to grow since Russia's invasion of Ukraine in 2022, upended regional energy markets and raised average energy costs across Europe. The change in average European wholesale electricity prices since Russia invaded Ukraine in February 2022 underlines the rate of energy cost increases seen in major countries.
In Germany, Europe's largest economy and leading producer, wholesale electricity prices since March 2022 have averaged 138 euros per megawatt hour (MWh), according to data from Ember. This average is 280% higher than the average from 2016 to 2019, and thus means that German electricity consumers have paid almost four times more for their energy since Russia invaded Ukraine than during the period 2016-2019 .
Such a dramatic increase in energy bills has affected every energy consumer in the country and has forced all energy intensive businesses to curb their energy use. France, Italy and the Netherlands also recorded over 200% increases in average electricity costs over the same time frame. Electricity costs in Poland have risen by 180%, and in Spain by 103%, Ember data shows.
The first downturn in the massive industrial base of the German economy has captured the wider impact of higher energy costs across Europe. Production of energy-intensive products such as steel, chemicals and fertilizers fell to record or multi-year lows in the wake of Russia's invasion of Ukraine and has barely recovered since then, according to LSEG data.
Manufactured goods production has also been affected, with turbine and engine production held to around 30% below previous production peaks. Even Germany's famous auto sector - a major employer across Europe, has cut new car production by over 30% from pre-Covid levels as high energy costs plus stiff competition from China and rivals others hit the producers. This collective industrial decline, in turn, has affected national and regional economic growth.
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