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Business Insider: Risk of recession in Europe. EU to fall into severe recession due to inflation and weakening economy

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risk of recession in europe

The risk of a recession in Europe is higher than ever. The EU could plunge into a severe recession, as the energy crisis is provoking a rise in inflation and a negative impact on GDP. It writes Business Insider, citing data from the analytical company BlackRock.

“Energy shortages will lead to a recession in Europe, as we already warned in March. The crisis has since worsened as Russia has cut off gas supplies to the continent,” the analysts said.

Is Europe in a recession now? 

According to analysts, tightening monetary policy will only break European economic activity, which is already severely affected by the consequences of the energy crisis. Right now, energy costs in Europe account for about 11.7% of total GDP. In the U.S., the figure is 5.3%.

Blackrock added that the European Central Bank (ECB) does not want to admit that its actions only make things worse. At the same time, the ECB will continue to follow its policy until the end of the year. This will lead to an additional 0.9% reduction in economic growth. Also, the energy crisis in Europe will peak in winter as the need for heating will rise sharply, which will provoke another rise in prices.

On September 12, Bloomberg agency regarding data from the financial conglomerate Goldman Sachs Group Inc. reported that the US economy has much more stimulus to grow in the coming months than the European Union. The economic situation in European countries is currently in dire straits.

Earlier we reported that Europe’s economy is in a “terrible” state.

Economy

Demand in a market for smartphones in China fell 13.2% in a year, to a decade low – IDC

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demand of mobile phones

Demand in the smartphone market in China fell to 285.8 million units last year, according to research firm IDC. On a year-on-year basis, the figure fell 13.2% to below the 300,000 mark for the first time in a decade. The decline in demand was affected by tight restrictions under the “zero-tolerance” policy on COVID-19 and a slowdown in economic growth in the country.

In the fourth quarter, demand for mobile phones in the PRC declined 12.6 percent to 72.9 million handsets.

“The historically low level of supply is forcing smartphone manufacturers to think about how to build a more sustainable business model and a more focused marketing strategy,” says Will Wong, senior research manager at IDC.

As a positive factor, he notes the end of the policy of harsh anti-covids, which “provides the market with a tailwind.” That said, the expert thinks a quick recovery is unlikely, as consumers have been spending more money recently in areas such as leisure and services.

At the end of 2022, vivo maintained its market leadership despite a 25.1% drop in sales. Honor was the only brand in the top 5 to show sales growth (+34.4%), also due to a low comparison base. OPPO shipments were down 28.2%; Apple Inc. (NASDAQ:AAPL) was down 4.4%, and Xiaomi (HK:1810) was down 23.7%.

Earlier, we reported that the outlook for the likelihood of a recession in most markets has declined

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Predicting recession probabilities in most markets declined

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do economists predict a recession

Predicting recession probabilities have fallen sharply from the highs of 2022, the JPMorgan Chase & Co (NYSE:JPM) model shows.

In seven of the nine asset classes tracked by the model, from European stocks to investment-grade bonds, current quotes suggest recession chances are below 50%. The value of the S&P 500 suggests traders see a 73 percent chance of an economic downturn in the U.S., up from 98 percent last October, Bloomberg wrote, citing data from the bank.

Do economists predict a recession?

“Most asset classes are showing a gradual reduction in recession risks Thanks to the opening of the Chinese economy, the collapse in gas prices in Europe, and a more pronounced than expected slowdown in U.S. inflation,” said JPMorgan strategist Nikolaos Panikirtzoglu. — The market now sees a much lower likelihood of a recession than in October.”

Meanwhile, his colleague Marko Kolanovic warned that investors may be underestimating the potential pressure that a slowdown in U.S. economic growth could put on stocks in the coming months. At the same time, factors such as a decline in industrial production and retail sales, as well as a rally in the bond market and the Federal Reserve’s promise to keep rates high will play into the bulls’ hands.

Economists, on the contrary, have become more pessimistic-their consensus forecast calls for a 65% chance of a recession versus a 50% chance in October, Bloomberg notes.

Negative signals are also observed in the bond market — the yield on three-month US government bonds exceeds the yield on 10-year securities, indicating that investors are waiting for a slowdown in economic growth in the coming months.

On the other hand, many market participants are hopeful that the world’s central banks will be able to give the economy a soft landing — and it’s precisely because of such hopes that risky assets have rallied in recent weeks.

“I don’t want to say growth will be outstanding, I just think it won’t be a nightmare,” HSBC strategist Max Kettner told Bloomberg. — There are simply no catalysts to a decline and no unpleasant surprises, so the only way is up.”

Earlier we reported that the U.S. Treasury is going to use emergency measures because the national debt is getting closer to the ceiling.

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U.S. Treasury starts using emergency measures because of the approach of the state debt to the upper limit of debt obligations

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debt limit definition

Yesterday, U.S. Treasury Secretary Janet Yellen told Congress that her office had begun using emergency measures because the size of the national debt is approaching the upper limit of debt obligations. These measures will prevent a default in the next few months, notes MarketWatch.

According to the treasury secretary, “it is unlikely that the money and the emergency measures will be exhausted before early June.”

Late last week, Yellen warned in a letter to congressional leaders that the U.S. could reach the national debt ceiling on Jan. 19, and an increase or suspension of the limit is needed to avoid a default.

“Failure to meet the government’s obligations would irreparably harm the U.S. economy, the livelihood of all Americans, and global financial stability,” the document said.

The Debt Limit definition is the statutory limit on the U.S. government’s borrowing to pay its current obligations, including Social Security, Medicare, and military salaries. Currently, this limit is about $31.4 trillion.

Earlier we reported that the Central Bank of China again kept the prime rate at 3.65%.

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