- Goldman Sachs says the natural gas crisis will spill over into Europe and weigh on the US economy.
- If natural gas flows from Russia remain at their current low levels, US trade with Europe will slow relatively sharply, the bank said.
- Goldman said the hit to the US would be “a significant headwind at a time when growth is already below potential.”
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The impact of natural gas shortages in Europe will impact the already slowing US economy by hurting transatlantic trade, according to Goldman Sachs.
The investment bank said the European economy is set to slow sharply and Germany is expected to face a crisis
recession
, as energy shortages weigh on growth. Goldman economists, led by Spencer Hill, said US exports to Europe are likely to suffer.
In a situation where Russian natural gas supplies currently remain at constrained levels, US exports could fall 4% in the first quarter of 2023 after rising 9% year-on-year in the most recent quarter.
The slowdown would likely shave about a quarter of a point off annualized US economic growth over the next three quarters. Goldman called this “a significant headwind at a time when growth is already below potential.”
Goldman also said that natural gas shortages in Europe could fuel US inflation further, causing production shortages on the continent and pushing up commodity prices in global markets.
Russia has restricted its natural gas exports to Europe, blaming the sanctions for blocking exports of a key piece of equipment from Canada. There are growing fears that Russia could make the roughly 60 percent reduction permanent or even stop deliveries altogether due to tensions in the Ukraine conflict.
Supply shortages have contributed to the dramatic rise in European natural gas prices, which have skyrocketed by more than 600% in the last year, adding pressure on the continent’s already struggling economy.
Goldman now expects Germany, Europe’s largest economy, to fall into recession, with negative consequences for the US.
“Exports to Europe account for 28% of US exports and just over 3% of US GDP,” Goldman said. “We find that exports to Europe are particularly sensitive to the pace of growth in Germany – probably because of its relatively open and production-oriented economy.”
The analysts added: “Accordingly, the below-average development of the German economy expected by our European team speaks for relatively larger spillover effects.”
Goldman said in June it doesn’t expect the US to fall into a recession, even if it does
federal reserve
raises interest rates sharply.
However, it has said the risks are growing. The bank’s CEO, David Solomon, said in an interview with NPR published on Monday that there was a high probability that the US would enter a recession in the next 24 months.
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