France’s finance minister has pledged additional aid for larger companies hit by high energy prices, as the head of the eurozone’s central bank warned that the region was facing “unprecedented shocks”.
Bruno Le Maire, France’s economy minister, vowed his government would help to shield businesses from spiralling gas and electricity prices, saying he would push to double the state aid available for industrial companies and other medium-sized businesses struggling with energy bills to up to €100mn. The measure requires sign-off from Brussels, but a €3bn pot already earmarked for helping companies will be rolled into 2023.
“Inflation is a poison for democracies, history has shown that,” Le Maire said as he outlined a budget for next year dominated by price-busting measures. France has already shielded households and smaller businesses from the surge in energy prices, capping increases at 15 per cent.
Russia’s invasion of Ukraine has squeezed gas supplies to Europe, pushing up prices of fuel, food and many other products, eroding household spending and hitting industrial production. Inflation is expected to reach a new eurozone record of 9.7 per cent when pricing data for September is published on Friday, while concerns intensify that the region will enter recession next year.
Christine Lagarde, president of the European Central Bank, told lawmakers on Monday that growth would “slow substantially” in the coming quarters.
However, with inflation almost five times the ECB’s target of 2 per cent, the European parliament heard that monetary policymakers would not be deterred from raising rates. The central bank has already increased borrowing costs by 1.25 percentage points since July.
The OECD warned on Monday that Europe risked being pushed into a recession next year if a harsh winter exacerbates the region’s energy shortages and natural gas consumption is not reduced at least 10 per cent to avoid it being rationed for power-hungry industrial groups.
The Paris-based organisation representing the world’s richest countries said Europe would be the hardest-hit region as it slashed its forecasts for global growth next year by 0.6 percentage points to 2.2 per cent.
Its forecast for eurozone growth was cut from 1.6 per cent to 0.3 per cent and it predicted Germany, the eurozone’s largest economy, would contract 0.7 per cent next year, down from its forecast for growth of 1.7 per cent three months ago.
EU gas storage, even at its current levels of about 80 to 90 per cent of capacity, might be insufficient to tide the bloc over a typical winter without it falling to dangerously low levels, the OECD added.
If governments are forced to ration gas supplies it would knock a further 1.25 percentage points off eurozone growth next year, it said, while adding 1.5 percentage points to its baseline forecast for inflation in the bloc to be slightly above 6 per cent next year.
Concerns about the energy crisis and a looming recession caused German business confidence to fall for the fourth consecutive month to a new 28-month low, according to the Ifo Institute’s benchmark survey of 9,000 companies.
The Ifo index of business confidence, published on Monday, dropped to 84.3 points, down from 88.6 last month. Economists polled by Reuters had expected a smaller decline to 87.1.
Clemens Fuest, president of Ifo, said the economy was “slipping into recession”.
“Pessimism regarding the coming months has grown decidedly; in retail, expectations have fallen to a record low.”
France, the region’s second-largest economy, is expected to grow 0.6 per cent next year, according to the OECD, which cut its forecast from 1.4 per cent in June.
The French government has budgeted a net €16bn to cap increases in electricity and gas prices for consumers and some of the smallest businesses at 15 per cent next year. It follows roughly €24bn spent this year on the so-called price shield.
Paris has delayed some difficult decisions on spending with a goal to keep the public sector deficit steady at 5 per cent of gross domestic product next year. It aims to bring it down to 3 per cent, or within EU-imposed limits, by 2027, according to the budget plans.