Eurozone economy set to shrink in 2023 due to high inflation: Reports

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Europe is trying to tackle dwindling fuel supplies from Russia, caused by Western countries' tight anti-Russia sanctions that were imposed over the start of the war in Ukraine in late February.

The Financial Times cited economists who warned that the Eurozone economy is set to shrink this year due to high inflation and potential energy shortages.

The economists indicated that the single currency zone was already in recession, with the gross domestic product expected to contract over the whole of next year.

Chiara Zangarelli, an economist at Morgan Stanley, indicated that "gas markets in Europe remain a key risk," warning that "additional supply disruptions, or a particularly cold winter, could lead to renewed tensions and prices rising again, forcing another round of adaptation and demand destruction."

Despite EU members managing to lower their dependence on Russian gas imports by turning to the United States and Norway, as well as shifting to alternative energy sources, economists have warned that without Russian supplies, it will be much harder to refill Europe’s gas storage facilities ahead of next winter.

On his part, Carsten Brzeski, head of macro research at ING Bank, warned that "gas storage levels are dropping quickly now," adding that "there is still the risk of an energy supply crisis this winter."

According to Brzeski, "Next winter will be even more challenging."

This comes a few weeks after Bloomberg reported that Europe "got hit by roughly $1 trillion from surging energy costs" amid the fallout of the war in Ukraine, warning that "the deepest crisis in decades is only getting started."

Shortly after the start of the war in Ukraine, the West imposed on Russia packages of severe sanctions. In December, the EU also joined the G7 to set a price cap on Russian oil at $60 per barrel and rolled out its ninth anti-Russia sanctions package.

The restrictions disrupted supply chains worldwide and exacerbated ongoing energy market issues, which in turn led to soaring oil prices.

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