The prices of energy resources could stabilize within 2-3 years / Article

Economists: Energy resource prices could stabilize within 2-3 years

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“SEB banka” economist Dainis Gašpuitis expressed that

the price of gas has not yet reached a record and the critical moment will be December.

Then it could be clear how effectively European countries have managed to save and reduce gas consumption. It will be possible to assess the amount of European gas reserves, and it will also be possible to assess what Russia’s next course of action could potentially be. This will make it possible to evaluate the balance of gas supply and demand.

“If everything works and there will be favorable weather conditions, that is, there will be no cold winter, it will provide relief from the demand side. Then perhaps we will be able to see some positive direction, that prices are moving down after all, as the pressure and the moment of stress disappear. There is reason to expect that prices should normalize at lower levels, but at what levels, it is impossible to say at the moment. And that could likely only be within the next three years. Certainly the price level will be higher than it was before the war,” Gašpuitis said.

And while all the changes will survive their cycle, adaptation will take place, an appropriate offer will be created, it should be expected that the population will have to pay a much larger share of their income for energy than it was before the war in Ukraine.

The economist of the Bank of Latvia, Erlands Krongorns, emphasized that the main influence on the price of energy resources is Russia’s aggression in Ukraine, and if the current situation persists, it is clear that the price of gas will remain very high in the foreseeable future.

“However, we already see that the economy is starting to slow down, and this is also reflected in oil prices. We can see that compared to some time ago, oil prices have fallen sharply due to concerns about future demand. And similar trends could appear in the short-term in natural gas prices, but they will still be very high in the foreseeable future,” Krongorn said.

The economist of the Bank of Latvia explained that the drop in gas prices is influenced by two factors: demand and supply. It is possible to influence demand by optimizing gas supplies, saving and thinking about consumption. And you can do it right away.

“On the other hand, when it comes to the supply side, related to capacity, gas production and infrastructure, to be able to deliver it to the market, to build it and adapt to new conditions, it will take more time. And that’s the main factor why you won’t be able to go back to your old life so soon,” Krongorn explained.

While the opportunities to return to the “old life” are limited, residents should expect that the high prices of energy resources will significantly affect everyone’s hand.

Bank “Citadele” economist Mārtiņš Āboliņš said that this year the average salary increase in Latvia is around seven percent, but the high inflation rate, which has already exceeded the 20 percent mark, reduces purchasing power. This in turn means that challenges are expected in the economy in the second half of the year.

“Inflation will definitely decrease in the foreseeable future, and wages should grow faster again. The question is how quickly we will recover the loss of purchasing power.

It is closely related to what is happening in the European economy, the US and the world economy in general. We see that there are quite a lot of signs that a recession is coming. Therefore, the economic situation this winter will be quite difficult not only here in Europe. Of course, if at some point unemployment starts to rise, then it will slow down wage growth. Those variables and scenarios are many at the moment: on the spectrum from slow growth to economic collapse. It is difficult to say what exactly will be realized at the moment,” admitted the bank’s economist.

Āboliņš pointed out that the good news is that there are no bad signs for Latvia’s economy in general, the situation regarding the budget is good and the state debt level is low. The main challenge is the rise in the prices of energy resources and the search for solutions to reduce the increase in costs.

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