MOSCOW BLOG: Winter is coming

MOSCOW BLOG: Winter is coming
A polycrisis is unfolding and it will get worse before it gets better. / bne IntelliNews
By Ben Aris in Berlin October 14, 2022

I held a webcast yesterday with economists Liam Peach from Capital Economics and Tomas Dvorak from Oxford Economics on the polycrisis that is developing as a result of the economic war with Russia. It was a pretty grim conversation but also frustratingly inconclusive. On the one hand everything has gone to an extreme, but on the other there are so many moving parts the guys were pushed to make any concrete predictions. We are sailing in a fog of uncertainty and there are rocks to the left and right that could easily sink the ship.

In effect Russian President Vladimir Putin has caused a really big economic dislocation, so whereas, as Tomas said, economists used to argue about a few tenths of a percentage point when making predictions, now the changes are measured in tens of percentage points. Clearly this crisis is a really bad one, worse even than 2008, but what is not clear is how fast Europe can bounce back, or even if it will bounce back at all.

My main takeaway was that despite the severity of the current crisis things are going to get worse and the current conditions are not going to go away next year. Indeed, we could be looking at many years of this and things could get really crazy if the war in Ukraine escalates. It’s also not clear if Europe will ever fully recover and how much damage will be done to the European economic system by massively remaking its energy infrastructure in such a short time.

The best bet for an early end is the sudden collapse of the Russian military effort and/or Putin’s ousting or death. However, if either of those things happen and Russia is seriously destabilised then of course things could get really, really crazy.

In the list today we have a comment on a Polish energy cap, but it’s not going to make a big difference and runaway inflation led to such a bad row amongst the central bank’s monetary policy committee they are now threatening each other with arrest. And our Kyiv correspondent talked to the head of DTEK, Ukraine’s biggest utility, who was speaking from a bunker at the time after air raid alerts went off. Things are really bad. The heating season officially starts in a fortnight. More Russian attacks on Ukraine’s power infrastructure seem very likely to me. But DTEK is working overtime to fix its power stations.

Oh, and by the way, the planet is dying and we are not doing enough fast enough to stop that from happening. Another aspect of the polycrisis is that Putin’s war has distracted everyone from a far more existential climate crisis. What frustrates me is that the solution to the energy crisis is actually the same as the solution to the climate crisis. If we are going to borrow silly money to deal with the energy crisis (which we are) then we should be piling it into green energy in the same way the motorway systems were built in the 60s. However, so far it seems that all is happening is governments are using the money to cap utility bills so they can pretend life remains “normal.” As the Chinese say, crises are opportunities and governments don’t get to borrow this much money often, but as in 2008, it looks to me that this crisis will be squandered.

You can watch the discussion on our YouTube channel here, or listen to the audio version on our podcast page here. We recently signed up to a new distribution service so our podcasts should be available on all your favourite audio apps like iTunes, Soundcloud or Spotify (here). I will share more details when I have them. Sign up for email alerts to new podcasts here.