Eurozone consumers reeling as electricity bills soar

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A gas meter is pictured in the cellar of a house in Bad Honnef, near Bonn, Germany, January 4, 2022, as energy costs in the EU reach new levels. REUTERS/Wolfgang Rattay//File Photo

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  • Energy bills up 54% on 2020 – BofA
  • Rising energy prices could limit consumer spending
  • Spain and Italy could see their GDP affected by 1%

FRANKFURT, Jan 18 (Reuters) – When Christian Hurtz opened his electricity bill just before the New Year, his jaw dropped: it had more than tripled the rate he had subscribed to.

The 41-year-old software developer from Cologne, Germany, is one of millions of Europeans who have seen their energy costs soar when suppliers went out of business due to soaring gas prices or passed them on to utilities. clients.

Spending more on heating, lighting or driving a car is straining the budgets of many households and shattering expectations that a consumer-led economic boom will follow pandemic-era restrictions.

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“At first I thought it was the amount for three months,” said Hurtz, whose bill came from the supplier of last resort after his own energy company stopped supplying.

“When I realized they wanted it every month, my jaw dropped. It kind of ruined my Christmas vacation,” he told Reuters.

In 2020, households in the euro area spent an average of 1,200 euros on electricity and gas. That figure is expected to rise to 1,850 euros this year, BofA analysts say, as geopolitical tensions drive up natural gas prices that a scarcity of energy supply from renewable sources cannot offset.

Hurtz and hundreds of thousands of other private energy company customers who went out of business or stopped supply last year – including 39 in Germany alone – found themselves paying two or three times the tariffs they thought they had achieved. Read more

Natural gas prices in Germany

CONSUMER BOOM?

This year was expected to see consumer spending drive growth after two years of COVID-19-related shutdowns and layoffs.

The European Central Bank said in December that it expected the eurozone economy to grow by 4.2% in 2022, driven by a 5.9% rise in private consumption.

But rising energy costs hitting households at home and at the gas pump — with oil rising by half and wholesale natural gas prices quadrupling in a year — are calling those predictions into question.

Energy typically accounts for just over 6% of private consumption in the euro zone, but this could rise to 8-10% due to rising prices, according to ING estimates, reducing what is available to spend on other goods.

“It would also be in line with previous episodes of rising energy prices, in which almost all countries saw their other spending fall,” said ING economist Carsten Brzeski.

The hit to growth should be significant.

In Italy, for example, gas and electricity prices will reduce household consumption by 2.9% this year and GDP by 1.1% if they stay close to current levels, according to the consultancy. Nomisma Energy.

“Weak Italian consumption has always been one of the main obstacles to stronger GDP growth and 2022 levels will make the problems even worse,” said Nomisma Energia chairman Davide Tabarelli.

The picture is even starker in Spain, where BBVA economists put growth at 1.4% for this year in estimates released in December and based on market prices below current levels.

“If price increases come from higher demand, they are less damaging,” said Miguel Cardoso of BBVA Research. “The current situation is not like that. We are seeing a negative supply shock.”

In Germany, the RWI Institute estimated consumer spending is unlikely to rise above pre-crisis levels until the second quarter of 2022 and said rising prices were likely to deter people from making major purchases. .

France was a partial exception as the government of President Emmanuel Macron, who is seeking re-election in May, capped electricity price increases at 4%. Read more

Other governments are also taking measures ranging from reducing energy taxes to providing subsidies to the poorest households.

But these will only offset about a quarter of the 54% rise in energy bills from 2020, according to BofA estimates.

Some people have already started to tighten their belts.

“You really have to cut back,” Hurtz said. “It’s gotten to the point where you have to wonder if they can still afford that cheese or if they should buy one from the bottom shelf.”

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Additional reporting by Gavin Jones in Rome, Belen Carreno in Madrid, Rene Wagner in Berlin, Leigh Thomas in Paris, Angeliki Kotantou in Athens, Stephen Jewkes in Milan, Bart Meijer in Amsterdam and Nina Chestney in London; Editing by Catherine Evans

Our standards: The Thomson Reuters Trust Principles.

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