If you don’t have cheap energy or cheap labour, what do you have?
Europe might be about to find out. Chemical giant BASF today said it will have to downside “permanently” in Europe due to high energy costs.
“The European chemical market has been growing only weakly for about a decade [and] the significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains,” chief executive Martin Brudermuller said today.
The company spent €2.2 billion more on natural gas through the first nine months of this year than a year ago. That’s on a company with a €42 billion market cap.
There’s certainly been some better news in Europe lately with TTF prices trading at €99.75, down from €300 at the peak but still far above 2019 prices of around €15.
Robin Brooks also captures why this is likely a short-term dynamic.
For the European economy, you have to ask what will be the source of growth for the rest of the decade?
If your currency is going to ‘win’ you need to win at something in the global economy. What’s Europe going to win at? Museums?
Maybe on the other side of the decade, Europe builds out nuclear and green power and gets moving on business competitiveness and comes out stronger. There will be a huge market in green tech as well that’s a viable path but that’s a 2030s story at best.