Monday Market Musings>>> Recession Looming Over Europe and US
Picture Credit: Fortune website
The European Central Bank is hinting at a recession. While the European Central Bank (ECB) officials updated the policy this month, ECB policymakers projected the euro-area economy would only stagnate, not decline, but they have since raised concerns about the outlook for inflation and growth in the area.
ECB announced an interest rate hike again just last week. The ECB president Christine Lagarde stated that there is a possibility of more than two and less than five rate hikes. Along with her colleagues, Christine Lagarde explains that the hikes are a result of their efforts to tame price growth. However, economists fear that the time is running out for such efforts.
The economy of the eurozone recovered in the first half of this year, but it is anticipated that the second half of the year's recovery will be slower due to recent events. Events which include the indefinite blockage of the Nord Stream 1 gas pipeline, sluggish global demand, faster monetary tightening by the United States, and tense geopolitics.
Picture Credit: World Bank website
Inflation is expected to reach 9.6% by the fourth quarter of the year. Economists predict it wont approach the ECB’s goal of 2% until 2024, with a 80% chance of a euro-area recession within the next 12 months. The risk of recession is at its peak since July 2020.
The US Federal Reserve has addressed the looming recession as well; Fed Chairman Jerome Powell stressed the need to act definitively and forcefully on inflation in order to avoid any social costs, this last Thursday, at the Cato Institute’s monetary policy conference. The outlook of the US economy is not looking very positive; over the next six to twelve months, demand is projected to continue to deteriorate due to high costs and tight labor markets.
September 19th 2022 | 8:30 PM