High electricity prices in EU causing energy-intensive industries to cut outputs

During the third session on Monday at the SteelOrbis Fall 2024 Conference & 91st IREPAS Meeting held in Paris on September 15-17, Professor Daniel Gros, director at Bocconi University’s Institute for European Policy Making and advisor at the European Parliament, made a presentation giving a macroeconomic overview of the US, the EU and China.

Professor Gros noted that the war between Ukraine and Russia has had a huge effect on oil and gas prices, which consequently impact manufacturing, especially in the EU. Stating that gas prices are normalized but are still above the longer pre-war average due to insufficient export capacity of LNG from the US, he noted that the higher gas prices have led to higher electricity prices. Looking at the EU, he stated that electricity prices are also higher in the region compared to the US and Asia, leading energy-intensive industries in the EU such as steel to cut production, though at the same time no industrial recession is expected.

Meanwhile, noting that throughout 2022 China’s manufacturing skyrocketed compared to the EU, the US and Japan, Gros stated that China accounts for 30 percent of global manufacturing, while the US and the EU account for 15 percent each, meaning China’s manufacturing output is now equal to the outputs of the EU and the US combined.

In addition, comparing R&D spending, Professor Gros stated that, in the EU, R&D spendings are focused on mid-tech, such as automotive, rather than on high-tech, e.g., software as in the US, leading to less economic growth. The reason for the mid-tech trap is that the European companies are investing in incremental innovation in the industries they know best in order to face lower risks.

steelorbis.com