Silvia Ardagna at the bank said the bloc’s push for “independence from Russian gas” would reduce growth, push up inflation and drag down the euro. “More expensive energy sources will likely have an impact on the competitiveness of the eurozone,” Ms Ardagna said. Industrial power plants Germany and Italy have carved out positions in global markets, in part because of the abundance of oil and natural gas from Moscow’s pipelines. But now they face losing access to those resources as Russia threatens to cut off supplies and European powers seek to end purchases from the aggressive dictatorship. The shift has already led to a sharp downturn in the economies of Germany and Italy as their strong manufacturing sectors, which suffered from pandemic supply problems even before the energy crisis, struggle with higher energy costs. Unlike Europe, the US industry is likely to be a winner, as the country is full of locally produced hydrocarbons. Some of that can be exported to Europe, which is trying to expand its capacity to import liquefied natural gas (LNG), but the price gap could be so wide that it pushes manufacturing out of the eurozone and into the United States. “Domestic producers may be able to respond to high prices by increasing energy extraction and expanding LNG capacity. And if there are still gaps in energy costs between the US and the rest of the world, some manufacturing industries may well relocate to the US,” Ms Ardagna said. “One consequence of higher domestic manufacturing output would be a stronger dollar.” This comes after a rise in the dollar due to rising interest rates, which has pushed down other currencies including the euro and sterling this year.
