The organizations predict that activity in the eurozone will contract at the end of the year due to an energy crisis that will limit consumption
The recession in the eurozone seems inevitable. After two years of a pandemic that saw the economy collapse in a way not seen since wartime, the long-awaited recovery is once again aborted. The war in Ukraine blew up the good progress of the activity and for six months all prices have skyrocketed due to the lack of raw materials and complications in the supply chains. The figures show that: the latest Composite Purchasing Managers Index (PMI) fell to 49.2 points for the second consecutive month in August. The figure below 50 points to an economic contraction, something not seen since the summer of 2020, in the midst of the pandemic.
This data measures economic expectations based on the current conditions of the activity. Therefore, it is one of the most followed by the market to assess the economic health of a country or region, in this case not very positive. S&P Global’s head of economics, responsible for the report, Andrew Harker, said after reading the data that they point to “an economy contracting during the third quarter of the year.” The figures show that production has fallen in many sectors, from the car to tourism or real estate, meaning the post-pandemic labor recovery will also lose momentum “with companies increasingly less inclined to hire more staff. to assume” in the face of the slump in demand due to high inflation.
And the two countries that have noticed the decline in this indicator the most are France and Germany, the two powers that are most attracting the European economy. The German PMI was well below the European average in August, at 47.6 points, the worst in more than two years. But it is that in France, the collapse has been less pronounced but more significant, as it rose from nearly 52 points in July to a decline of 49.8 in August, its worst figure in a year and a half.
It was none other than the Bundesbank, Germany’s central bank, this week warned that the country is threatened with a recession due to high energy prices and supply chain problems, key factors for major German industry. This contraction in activity could lead to a recession in the first quarter of 2023, they point out.
In response to this forecast, Bundesbank president Joachim Nagel warned in an interview that inflation in Germany could reach 10% next autumn (it was 8.5% in July), breaking all records, calling for calls for another rate hike by the European Central Bank (ECB) to curb consumption and lower prices.
The same body also sees a recession as one of the most likely scenarios for the coming months. The German representative of the ECB’s executive board, Isabel Schnabel, recently warned in an interview with Reuters that if Russia’s energy supply becomes further complicated, the eurozone will plunge into a technical recession (two consecutive quarters of sub-zero economic growth). He pointed out that the ‘shock’ in energy prices is ‘too great’ to compensate for the adaptability of the European economy. Still, he assured that the expected deterioration in activity in the eurozone is not a sign of a “prolonged and deep recession” as it did during the 2008 crisis.
Experts consulted assure that “extremely expansive” European monetary policy gave rise to negative interest rates that have caused “uncontrolled inflation”, in turn driven by the war in Ukraine. European University professor Daniel Arnaiz believes the recession will be “quite persistent” because this restrictive policy has “much slower” effects than the expansive one, which will “delay the onset of the economic correction”.
In addition, he believes that Spain will be just as affected as the rest of the eurozone countries because “all depend on the monetary policy of the ECB, despite the individual characteristics of each country.”
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
