Six months after the start of the war in Ukraine, the consequences for the economy are being felt more strongly. And Portugal does not forget about the global trend.

“For Portugal and other distant countries, the main consequences of the war were to increase the price shock of the last phase of the pandemic. What is now called “inflation” and the associated rise in interest rates are the main symptoms. The painful period of abnormally low performance is over,” says Joao Cesar das Neves in an interview with Nascer do SOL.

And the latest blow to the Portuguese economy was the announcement by EDP Comercial and Galp that gas prices would go up in October. First, EDP Comercial announced that it would raise the price of household gas by an average of 30 euros per month, plus fees and taxes, which would equate to an additional five to seven euros in fees and taxes, the company’s executive president said. , Vera Pinto. On the same day, it was Galp’s turn to follow his example, without revealing, however, the significance of this increase.

And what’s the reason? The electric power company justifies its decision by the increase in gas prices on international markets in recent months, a situation exacerbated by the war in Ukraine and restrictions on the supply of Russian gas, which also led to higher prices in other markets, such as gas from Algeria. Galp had already increased natural gas tariffs for residential customers on 15 April, looking at that time for a monthly increase of up to three euros for the main levels of natural gas, and again in July for an increase of about 3.60 euros for the most representative levels. client group.

The announcement that prompted the government to take action to mitigate these impacts, one of which is legal permission for families and small businesses to access the regulated market for this energy. “Prices on the regulated market will be less than half of the prices of suppliers who have announced their increase. We really believe that with this change, many consumers will have lower gas bills than they currently have,” said Environment Minister Duarte Cordeiro.

The measure will be in effect for a maximum period of 12 months and could cover around 1.5 million customers, the official said. Another measure concerns the relaunch of the Bilhar Solidarity program, for which funding was mobilized from the Environment Fund, recalling that “two weeks ago it introduced a maximum price for the sale of gas cylinders, a measure that protects more than two million consumers.”

Is an answer enough? Cesar das Neves acknowledges that “the impact was fast enough and vague enough not to provoke an overt political response, so the criticism is not obvious. The only point where one can speak of failure is the support of the most disadvantaged classes, who once again suffered the most and did not have sufficient support.

Paulo Rosa, senior economist at Banco Carregosa, acknowledges that the government sought to mitigate the negative effects of the war on the most vulnerable, but believes the executive branch could go further with regard to “the harmful phenomenon of inflation, namely in terms of fossil fiscal policy.” fuel.”

The energy with the most notable impact

Ricardo Evangelista, CEO of ActivTrades Europe, has no doubt: “The rise in energy prices was the most visible consequence of the invasion of Ukraine.” He recalls that in addition to this, one can also point to “some turmoil in the markets for food raw materials, the prices of which initially recorded a significant increase,” adding that “this dynamic has caused an acceleration in inflation and also a change in the European geopolitical balance with Germany and some other countries, forced to drastically change their energy strategy.

XTB analyst Enrique Tome also emphasizes that energy and agricultural prices were hit by the scale of prices, “further exacerbating inflationary pressures that were already being felt at the time.” And despite acknowledging that the prices of most agricultural products have already returned to pre-war levels, upward pressure continues in the energy sector due to tensions between Russia and Europe over gas supplies.

“Russia used natural gas as blackmail, given that the country remains an important partner in terms of gas supplies and about 40% of the natural gas that Europe imports comes from Russia,” he told Nascer.do SOL, also remembering that “ at the moment, this is the main concern of the markets – the risk of cutting off the supply of natural gas, which could have dire economic consequences for Europe.”

problematic inflation

According to Paulo Rosa, inflation is the main negative impact on the Portuguese economy. The Economist guarantees that it could be lower if the government pursued an expansionary fiscal policy based on greater cuts in taxes on imported fossil fuels, the elimination of most of the ISP (tax on petroleum products), as well as VAT, namely what accounts for hydrocarbons.

And do the math: the ISP revenue of the Portuguese Executive grew by 84.7 million in the first half of this year compared to the same half of 2021 to 1608.6 million. Also between the same half years, VAT increased by about 25% from 7,920.7 million to 1,0052.3 million euros.

The economist also says that growing fears of cuts in gas supplies from Russia and the approach of winter will continue to put pressure on inflation in the eurozone and could force the European Central Bank (ECB) to further cut monetary policy, based on a higher-than-expected increase in interest rates. rates. “In light of this scenario, the deteriorating economic outlook in the euro area is intensifying. In this context, the aggravation of difficulties for the national economy and the Portuguese executive is emphasized.”

And he does not hesitate: “Fighting inflation and its evils is more important for the ECB than preventing a recession. Thus, this persistence of the central bank will become more and more visible, even if it causes a more or less deep recession. It is also true that a recession is deflationary, increasing unemployment, lowering disposable income, slowing household spending, and ultimately easing pressure on prices.”

Recession around the corner?

Ricardo Evangelista leaves the door open for “a scenario involving a recession in the eurozone before the end of the year.” And he gives an explanation: “Inflation, especially in the energy sector, is expected to remain a problem. There is also a possibility that Russia will completely cut off gas supplies to Europe, which will exacerbate the already established recession scenario in the eurozone.”

The outlook is bleak, the official said. “The deteriorating economic situation in the eurozone will certainly force us to reconsider our economic targets. In particular, the GDP growth target may need to be revised.”

Cesar das Neves is also skeptical about the future. “It’s still very uncertain, but it could be even better than feared. Of course, it can be worse.” Given this scenario, he admits that economic targets may be revised.

Enrique Tomé also concludes that the outcome of this situation remains unknown, but recalls that “it is important to note that Russia is also suffering from the severe economic consequences of the war. The Russian economy remains isolated and the country lacks the financial capacity to continue to bear the costs of invading Ukraine,” and while acknowledging that it is difficult to move forward with projections, he says a resolution to the conflict could be reached if there is again room for dialogue between by all interested countries.

As for the economic targets, the analyst says they could be revised again and possibly lower, although “it’s difficult to move ahead with forecasts at this stage as there are many uncertainties in the markets.” An opinion shared by Paulo Rosa, who believes that, given all that is happening, “it is likely that the executive will be forced to revise GDP growth downward and upward in inflation projected for this year.”