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New Economic Reality: The Impacts of Rising Energy Pressures on Businesses and Consumers

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Aleksandra Svidler Bio

The recent energy crisis has revealed the vulnerability of businesses, consumers and entire economies to energy market shocks. It has thus emphasised the importance of the global energy transition and opened opportunities for innovation and investments in green technologies. As energy market uncertainty lingers, proactive business strategy adjustments are key to withstand future energy supply and price risks, and to capitalise on emerging opportunities.

While the immediate energy crisis has subsided, global energy pressures are expected to persist due to a combination of rising energy demand, geopolitical and economic factors, limited natural resources, investment gaps in oil and gas projects and inequitable distribution of green investments. Intensifying climate regulations, mandating the accelerated phase-out of fossil fuels, contribute to mounting energy pressures.

Low energy self-sufficiency leaves Asian, African and European economies vulnerable

Euromonitor International’s Global Energy Vulnerability Index 2023 revealed that low energy self-sufficiency, high dependency on fossil fuels and financial constraints raise vulnerability of many developing Asian economies, while most African countries are grappling with inadequate infrastructure, poor energy access, and low investment.

Energy pressures have been mounting rapidly in developing countries, fuelled by robust economic growth, population expansion, urbanisation, and industrialisation, all leading to a significant surge in energy demand. Considering these projections, increasing consumption, combined with limited green investment and infrastructure constraints, present significant challenges for developing economies in reducing their dependence on fossil fuels and building energy resilience.

By 2030, developing countries are forecast to experience over 35% real economic growth, with total population exceeding 7.3 billion

Source: Euromonitor International

Energy import-reliant European countries are also exposed to global energy shocks. Yet, the region is better positioned to withstand potential disruptions due to accelerating renewables adoption, better access to capital and policy support. For example, the EUR300 billion REPowerEU Plan, introduced by the EU in 2022, aims to accelerate and streamline renewable energy expansion, and enhance energy efficiency.

Although the recent energy crisis has undermined Europe’s competitiveness for energy-intensive companies, efforts to strengthen energy security offer vast opportunities for business and consumers. For instance, the German producer Bosch plans to invest EUR1 billion to ramp up its European production of heat pumps by 2030, to meet surging demand for this energy-efficient technology in line with REPowerEU targets.

New Economic Reality FINAL MAP.svgNorway, Canada, Australia and the US rank at the top of the index due to high energy self-sufficiency, a diverse energy mix and economic affluence. The US is expected to remain among the leaders as a result of the substantial funding allocated for clean energy expansion in the US’s Inflation Reduction Act of 2022, which will further strengthen the country’s energy security and benefit its businesses and consumers. For example, the US car manufacturer Tesla, together with its battery partner Panasonic, would receive USD1.8 billion in production tax credits in 2023 for producing electric vehicles (EV) batteries locally, leading to more affordable EV prices for consumers.

Opportunities for energy-vulnerable businesses to diversify, innovate and enhance energy resilience

The energy market’s volatility exerts pressures on companies, leading to higher costs and strained profit margins, while potential energy supply cuts pose risks to production output. Rising energy pressures particularly affect energy-intensive sectors such as chemicals, minerals, metals and paper.

To ensure operational continuity and protect their bottom line, companies are exploring options such as relocating production to more resilient regions, reinforcing their supply network and investing in renewable energy and energy-efficient equipment.

67% of companies indicated they plan to invest more in energy initiatives over the next five years

Source: Euromonitor International Voice of the Industry: Sustainability Survey 2023

While these measures can boost a company’s energy resilience and competitiveness, they usually require large-scale investments and take time to implement. On the other hand, smaller-scale changes, such as energy audits, employee training, and renewal of heating and ventilation systems, can also yield significant cost savings, while offering a better return on investment.New Economic Reality chart2.svg

Energy crisis heightens consumers’ price sensitivity and energy-saving awareness

Over the past two years, energy was the major contributor to consumer inflation across many countries, directly affecting costs for electricity, heating, and transportation, and also indirectly increasing expenses for non-energy goods and services.

63% of respondents worldwide highlighted struggling to pay their energy bills over the past 12 months

Source: Euromonitor Voice of the Consumer: Lifestyles Survey, fielded January to February 2023 

In 2022, the average share of spending on home energy was highest in Eastern and Western Europe, highlighting the vulnerability of consumer purchasing power in these regions to energy price fluctuations. As a significant portion of consumer expenditure is allocated to energy costs, elevated energy prices limit discretionary spending, especially for the lowest earners who spend a higher share of their budgets on energy bills.New Economic Reality chart3.svgPersisting energy pressures, arising from resource scarcity, supply regulations and costly investments in green energy transition, are expected to remain an important driving force fuelling inflation over the mid- to long-term.

The recent energy shock and rising energy pressures will have a lasting effect on consumers’ price consciousness and energy-saving awareness. This offers growth areas for businesses to support clients in their journey towards energy efficiency and sustainability. For example, the multinational company Procter & Gamble has improved its laundry detergent formulations and encouraged people to switch to cold water washing with its Ariel and Tide brands, in an attempt to reduce energy usage and environmental impact.

By promoting energy-efficient products and services and employing educational campaigns to help consumers reduce energy costs, businesses can position themselves as part of the solution to rising energy pressures, and foster customer satisfaction and loyalty.

For further insights and analysis, read Euromonitor International’s full report, New Economic Reality: Rising Energy Pressures, which is part of our report series on the key topic New Economic Reality.

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