These days, it is paramount that one closely follows Fatih Birol, the President of the International Energy Agency (IEA). As he is the head of the IEA, the most competent institution on energy in the world, he explains things that will allow us to correctly read the field with information based on technical studies. Meanwhile, the IEA reports are full of comprehensive analyzes for our understanding of the situation.
Even though we have been reading about the issue only in terms of prices recently, things have become much more complicated than it seems on the energy front. "The world has never witnessed an energy crisis of such a magnitude in its depth and complexity," said IEA President Birol. So we are in an energy crisis like we have never seen before. There is more. According to Birol, we haven't seen the worst of the energy crisis yet. Almost everyone agrees that a long and difficult winter awaits, particularly in Europe.
The global economy is in trouble with high inflation. Expansionary monetary and fiscal policies implemented during the pandemic period caused inflation to get out of control. While the biggest criticism of economists is that central banks are late in taking steps, economic administrations claim that they are so expansionary because economies need to be supported. However, the issue is not just about monetary and fiscal policies. Let's repeat; We are in the midst of a very serious energy crisis right now.
The energy crisis, which deepened with the Russia-Ukraine War, is affecting the country's economies more and more. The European Union is one of the most damaged by this work. In the coming period, many more problems are at our doorsteps, including the EU's access to energy. Russia's steps have already put the EU in trouble. Gas prices in Europe have already increased 10 times the pre-pandemic period. Worse still, we are still at the very beginning. We foresee that the energy crisis will deepen towards the winter. Estimates are increasing day by day that natural gas cuts and rising energy costs will lead the EU economy to recession, together with the current anti-inflationary policies.
As I mentioned in my previous columns, the U.S. economy has contracted for two consecutive quarters. Under normal circumstances, we technically call this a recession. But the National Bureau of Economic Research (NBER) in the US has a different definition of recession. I mentioned this in my previous post.
Of the 6 variables NBER looks at to declare whether the economy is in a recession, 4 do not seem to indicate a recession. For example, despite the slowdown in industrial production in the USA, it is still strong. The situation in non-agricultural wages does not look bad either. Although individual real consumption growth has decreased markedly, its annual growth is still positive. The annual increase in real incomes, excluding transfer expenditures, is also positive. However, despite all this, the US economy contracted for 2 consecutive quarters. The general opinion and trend are that the economy is in recession.
The shrinkage of the EU economy is not very good news for Türkiye. Because the EU is our biggest export market. In this respect, it is obvious that the slowdown there will adversely affect our exports. Moreover, despite the sharp interest rate hike by the European Central Bank to combat inflation, the Euro/Dollar parity is still not getting stronger. This situation negatively affects the economies like us, which buy intermediate products in Dollars and export them mostly in Euros.
