Stéphane Monier noted how Europe has rushed to build gas inventories as supplies from Russia dwindle. Stocks stand at more than 80 per cent, or around two-months of supply, ahead of seasonal targets. The European Commission has passed a regulation to reduce gas demand by 15 per cent between now and March 2023.

In addition, the bloc’s energy ministers have agreed in principle on the need to address the system of setting power prices across the region to balance supply and demand more efficiently, without penalising cleaner sources. Their proposals include electricity savings, a cap on excess revenues and profits as well as state aid for utility firms, Monier said.

As things stand, Monier anticipates a 1 per cent decline in gross domestic product for the eurozone in 2023. However, much depends on the severity of the winter ahead and how easy it will be to refill gas stocks, he said. Some estimates suggest that a very cold winter could result in gas demand one-and-a half times higher than in a mild season.

If the EU manages to coordinate LNG supplies, creating a cohesive approach to the market while offering households support, he estimates that the impact on GDP could vary from -1.1 per cent in Hungary, to -0.2 per cent in France. A fragmented approach and lack of fiscal support on the other hand could dramatically intensify the effects, he said.

A further variable is the competition for LNG supplies with Asian markets, and China in particular. Most of the infrastructure for delivering Russian gas still flows west, limiting the quantities that Russia can switch to deliver to China, meaning that Asia and the EU continue to compete for shipments of LNG, Monier explained.

In parallel with efforts to curb gas revenues paid to Russia, this month the G7 group of countries also agreed to cap the price of Russian oil. The ban is designed to keep Russian oil flowing into global markets while limiting the Russian state’s “ability to fund its war of aggression,” according to the G7 statement.

As economies brace for the impact of recessions, as well as uncertainty over Chinese economic growth, the Organisation of Petroleum Exporting Countries, plus Russia (OPEC+) agreed last week to cut production by 100,000 barrels per day, or around 0.1 per cent of global demand, he said. The cartel wants to retain some spare capacity and keep oil prices at around $90 to $100 per barrel, where he believes they are likely to stay until the end of the year, before falling in early 2023.

Of course, higher imported energy costs are also driving inflation higher, he stressed. Eurozone headline inflation rose 9.1 per cent in August, compared with a year earlier and energy costs accounted for an estimated 38 per cent of that increase, according to the European Commission.

The euro’s weakness against the US dollar is exacerbating the inflationary effect of imports. The common currency has declined nearly 18 per cent against the dollar since January 2021.

Last week, the European Central Bank reacted by tightening its benchmark interest rates by a record 75 basis points. It indicated that there will be further increases in the months ahead, although it did not go as far as forecasting a recession.

Monier sees eurozone rates peaking at between 1.5 per cent and 2 per cent by the end of 2022 and remaining unchanged through 2023, when he expects the region’s economy to expand by 0.4 per cent.