The projected GDP of Europe remains unsettled due to the war in Ukraine. Estimates of European GDP shrinkage once ranged around 3%. Risks to Europe and Central Asia place European GDP in a vulnerable position. The GDP of Ukraine is now expected to contract about 45%. Comparisons of Europe and US GDP made last year are not viable today.
Inflation Impacts GDP
While inflation in the US is currently 8.6 %, Europe is similar with a rate of 8.1 % in May. However, the European energy sector inflation rate in May was ~37%. While many Americans like to believe President Joe Biden is personally responsible for inflation, the truth is the worldwide energy sector has been increasing significantly since March 2021. The worldwide energy sector inflation has nothing to do with the XL Pipeline permit decision. It has a lot to do with the war in Ukraine and sanctions imposed on Russia, so-called “external shocks.”
Deutsche Bank reported in January 2022 that the cause of global energy inflation was: “On the one hand, global energy demand has increased drastically due to the synchronized world economic recovery and higher mobility after the first corona lockdowns in early 2020 and winter 2020/21. On the other hand, the global energy supply has been severely disturbed by several external shocks and market imbalances such as extreme weather events in the US in early 2021, technical problems at gas fields and pipelines in Europe, low filling levels for gas storage capacity in Germany, interruptions in the global logistics sector or trade issues between China and Australia.”
Economically speaking, Europe will continue to lag US GDP growth for the foreseeable future.
Are there remedies for this global oil shock and inflation? Energy diversification is the best solution. One of these diversities is liquid gas: “Global gas markets are set to become more diversified during the next few years given the rise of LNG infrastructure (Liquified Natural Gas). Global LNG trade has increased during the last few years. For example, US LNG exports were more than 60 times higher in 2020 than they were in 2015 (fracking and new LNG infrastructure).”-Deutsche Bank
Until the price of global energy is reduced, there is little to be done about inflation by the US government no matter which party holds the reins of government. The energy sector inflation leads transportation sector inflation. And transportation activities provide mobility to passengers and freight, which accounts for about 25% of world energy use.
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