The four main eurozone economies are holding their breath to avoid a recession

“Europe is heading towards recession. This is the reading of Yacine Rouimi, chief economist at IHS Markit, with whom Tej Parikh, his counterpart at Fitch Rating, aligns himself, for whom “the risks of Red numbers Eurozone GDP rose on fears of impending Russian energy supply cuts, already manifested by disruptions to flows from the Nord Stream 1 gas pipeline. Colleague Jens Eisenschmidt at Morgan Stanley also notes in a note to investors that the monetary partners will enter into contraction in the fall and into “technical recession” – two consecutive quarters with negative rates – in the winter to resume the dynamism in the spring of 2023 driven by business investment.


Brussels plans rationing and a mandatory 15% reduction in gas consumption in case Putin turns off the tap

Brussels plans rationing and a mandatory 15% reduction in gas consumption in case Putin turns off the tap

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These three examples of buttons on the stormy summits that threaten the European situation After the summer period, they synthesize the voices warning that the summer quarter is just some sort of truce trap, as the start of ECB rate hikes undertaken this week – by no less than half a point, the least expected option by the market— could bring another equally severe financial strain in September. Judging by the reserve of ammunition – of another half-point caliber – that the monetary authority says it is ready to approve in two months to face the hot geopolitical, energy and monetary fall. More wood to curb inflation in the euro zone which, in June, marked an increase of 8.6%.

Various indicators show the first signs of a slowdown in household spending, a drop in confidence in the consumer and business barometers, as well as a sharp slowdown in the manufacturing sectors; especially German.

Eisenschmidt forecasts rates at 0.75% by the end of this year, “if the economic climate does not deteriorate further because of the gas embargo or the price spike.” Rouimi delays the contraction of the euro zone until well into 2023, when the springs of inflation, rising rates and energy flows to Europe will be tightened.

Despite the fact that “some GDP parameters such as the tourism industry are increasing their demand this summer”, they will end up being affected by energy and inflationary threats, warns IHS Markit, whose consensus at the end of June placed the increase in GDP of the euro at 2.5% this year and 1.5% in 2023; respectively three and a half tenths of a point below the market average. Some forecasts in line with the recent summer prediction of the European Commission, which adds a tenth to this year (2.6%) but withdraws for the next.

Even so, diagnostics are emerging against the euro’s collapsing GDP, interpretations that believe the ECB “will not raise rates to the point of pushing the economy into the abyss” or, at least , to avoid this, if there is an episode of contraction, correct your consignment note and avoid entering Red numbers. This is the opinion of Aila Mihr, economist at Danske Bank, who points to the possibility of “a pause at the end of the year which will not, however, prevent inflation from extending too far from the limit of 2% until 2023”. ”. The Bloomberg consensus has just increased the chances of a recession in the euro zone next year to 45% against 30% in June, but the bet to avoid the Red numbers.

Euro poker comes into play

The drums of the crisis in Europe are resounding due to the inflationary loop, the decline in the purchasing power of families, the industrial slowdown and the end of budgetary collection aimed at stimulating the economies, which leaves the ECB facing the hard affront to speed up or slow down slow the pace of rising money. The conference board stresses that recession can still be avoided due to the “strength of their labor markets and signs that business investment plans will continue to road maps expected”. Ilaria Maselli, its chief economist, is eager to see the bottle half full. shock booming energy sector, or encourage and fuel their innovation plans to reduce their productive dependence” on factors exogenous to the euro zone.

But how do the four most important partners of the euro deal with this double dilemma, monetary and economic? Faced with visions such as that of Maselli, who bet on the “surprise of productivity and demand” as tools to save the euro zone in 2023, the German, French, Italian and Spanish conjunctures offer ambivalent signs due to the varying degrees of connection with Russia, the rhythms of its GDP and its different productive engines.

Germany, the locomotive is idling. After grabbing into the home stretch of 2021 registering a contraction of seven ticks due to the omicron variant lockdowns, the modest 0.2% rebound between January and March suggests that the euro’s largest economy, with inflation of 8.2% and its historical aversion to price increases, sailing with a seized engine.

In an atmosphere of great concern, he activated level two of the energy alarm of the three considered, although he has not yet considered taking a further step to intervene in the market. Uniper, Russia’s biggest gas importer, has just demanded bailout for failing to pay the urgent loan of more than 2,000 million euros it had to apply months ago to the federal bank KfW, a kind of German ICO. In addition, there are fears of the collapse of entire industries due to the gas bottleneck which permanently endangers aluminum, chemical and manufacturing companies.

The conference board admits that the industry made in Germany “is under stress” due to rising production prices and power cuts. Even investment, the big contributor to weak German GDP growth in the first quarter, could succumb to the geopolitical barometer. Now, not so much to seal a recessive year. The bet is on a slight increase of 1.2% which would explain the prospects for short stays which have settled on the market in the event of a particularly hot autumn with a possible cut in the flow of Russian energy. This panorama is shared by the IMF, which estimates that it could lead to drops in GDP of 2.8% in the next twelve months, and two of the major research institutes -Ifo and IfW-, which see “less growth with too much inflation”.

France, closest to stagflation. Gallic GDP remained stable between January and March. However, for The conference board, its service sector will maintain its pulse until reaching a 2.4% increase this year; yes, at the cost of leaving a point in 2023. France has the best inflation rate of the four major monetary partners, which ended June at 6.5%. Daniela Ordóñez, of Oxford Economics, points out that French services companies continue to show signs of relative vitality, despite a slowdown in June, with a tendency to “strengthen during the summer months”.

The Governor of the Banque de France, François Villeroy de Galhau, summed it up well: “The activity is not brilliant, but it is resisting. The French regulator gives its economy 2.3% growth in 2022 and a slight rebound of 0.25% in the second quarter in its latest forecast. While its chief economist, Olivier Garnier, says he is confident that price pressures will begin to ease to see CPI declines in 2023. A short and manageable space that, for Finance boss Bruno Le Maire , would put a deadline on rising corporate prices to save their fiscal years.

Italy, in the spotlight of the markets. The transalpine political crisis, which looked like a controlled detonation bomb, will end the era of Mario Draghi as tenant of Palazzo Chigi and with a new call for elections. The euro zone’s third-largest economy started the year with a tenth contraction, which was then corrected upwards, recording a 0.2% rebound. But Russia’s second-largest monetary energy customer and biggest beneficiary of Next Generation funds is losing a prime minister who stood as the banner of sanctions against Moscow, instigator of an ECB that announced it had methods to contain market speculation in risk premiums and who, as the former European monetary authority, put Frankfurt on alert as to whether a rise in interest rates would not lead to a recession for the euro- club and for his country.

There was no shortage of reasons, given that Italian inflation soared to 8.5%, a tenth below the eurozone average, and with it industrial costs dampened the momentum generated through community resources. Despite the political crisis, Italy is trying to cushion the pressure on the sovereign bond market, diversify its gas purchases from Algeria and revive tourism this summer as a soothing effect in the face of institutional turmoil.

However, the big stumbling block for Europe will be access to credit, explains Max Castle, manager at Mediolanum, which “will be more and more complex and visible” and Italian companies are among those who will bear the worst the abandonment of the ECB’s corporate debt buyback programme.

Spain refuses to fall. The summer puts the fourth power of the euro among the most dynamic in the euro zone, according to the Commission, with an increase of 4%. Despite the fact that the BBVA research service speaks of a contraction of half a point in the last months of 2022.

“Tourism has exceeded the best expectations,” said Carlos Cuerpo, head of the Spanish Treasury, who does not rule out an improvement in economic forecasts due to the vitality of this section, so transcendent for the health of the Hispanic situation. For Body, in the declarations to BloombergHe is leap in tourism dynamism reveals that health restrictions are no longer in the collective mind of visitors and that they have accepted the price pressures.

Exceltur, the employers’ association for tourism agents and businesses, predicts the sector will generate 152 billion euros in revenue this year after returning to pre-COVID-19 employment levels in June. María Romero, of AFI, specifies with a “reconfiguration of consumer spending” at the end of the summer period.

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