Will the decline in the US economy begin to slow? Compared to the first quarter of 2022, U.S. GDP has fallen by 0.9% year on year, said the country’s Commerce Department. At the same time, the economy was supposed to show growth of 0.3 p. p. This was the second decrease in the year – in the first quarter of 2022; it decreased by 0.3 p p. compared to the previous quarter. The decline in real GDP reflects a decline in private investment in inventories and fixed capital, as well as reduced spending and investment by the federal government.
Decline in the US economy becoming stronger or weaker?
Despite the decline in real GDP, the Commerce Department reported a 7.8% ($465.1 billion) year-over-year increase in GDP at current prices, as well as an increase in exports and personal consumption expenditures (PCE) related to Americans’ domestic and foreign travel.
Consumer spending, which accounts for two-thirds of U.S. GDP, increased 1% in Q2 after rising 1.8% a quarter earlier. Business fixed investment fell 3.9% and federal government spending declined 1.9%. Exports jumped 18% last quarter, while imports rose only 3.1%.
Economists at Deutsche Bank predicted recessions in the U.S. and Germany on July 15. In their opinion, markets were seriously changed after the data publication on July 13, which showed an acceleration of consumer price growth in the USA. The futures-markets dynamics allow for an almost 100% probability of a recession in the American economy till the end of 2022.
A report from the International Monetary Fund on July 12 stressed that the U.S. will find it “increasingly difficult” to avoid a recession. The Institute worsened its estimates of the economy: the growth forecast for 2022 was decreased from 2.9% to 2.3%; the real GDP growth expectation for 2023 was decreased from 1.7% to 1%.
The Fed is raising the rate at an accelerated pace: at the last meeting – immediately by 0.75 bp to 1.75%, which was the biggest increase since 1994. However, the current prime rate (1.58%) remains very low – far below both the neutral level (2.5%), and the inflation rate (9.1% in annual terms in June). Most analysts expect the Fed to have to raise the rate to at least 3.75-4% at the end of the year.
We should not expect that the very fact of a recession in the U.S. will have a strong negative impact on other developed world economies. The effect will strongly depend on the depth of the crisis. In any case, the severity of the recession will not be comparable to the Great Depression, when for four years there was a rapid drop in GDP.
Earlier we reported on whether Europe is in a recession.
Credit Suisse bank CEO says “critical moment”
One of the largest banks in the world, Credit Suisse bank is experiencing a “critical moment”, said the CEO of the financial institution, Ulrich Kerner, in a memo. It is reported by TheStreet.
He expressed his understanding that there is a lot of uncertainty and speculation both inside and outside the company. According to Kerner, there will be more rumors and speculations in the future.
The outlet emphasizes that Credit Suisse bank is currently struggling for survival. A year ago the market capitalization of Credit Suisse was $22.3 billion; now it is only $10.4 billion. Over the past year, the stock of the financial institution has fallen by 56.2%.
If Credit Suisse goes bankrupt, the market could be in for a shock, experts predict. Kerner argues that Credit Suisse is in restructuring for a longer-term and sustainable future.
Earlier it became known that the second largest banks in Switzerland, Credit Suisse and Deutsche Bank, faced financial difficulties. Against this background, the share price of Credit Suisse on Monday, October 3, declined to a historical low of 3.518 francs, or about $3.55.
Earlier we reported that the European Commission is preparing for possible blackouts due to the crisis.
China makes hundreds of millions of dollars on reselling LNG from the US to European companies
China earns hundreds of millions of dollars on reselling LNG from the US to European companies. Local Asian companies are sending tankers carrying U.S. LNG to help the European Union prepare for the winter heating season, The Wall Street Journal reported, citing sources.
Reselling LNG from the US to European companies is observed due to the reduction in demand for gas to China. As a result, local companies profitably sell surplus feedstock abroad, primarily to Europe.
“In the first eight months of this year, only 19 LNG ships docked at Chinese ports, compared to 133 such ships in the same period last year, meaning a significant portion was diverted to buyers in Europe, as well as Japan and South Korea. US LNG exports to Europe are profitable for China and the United States,” the article says.
On October 3, analysts at the International Energy Agency (IEA) predicted that in February 2023 the storage of gas in the European Union will be up to 5% empty without supplies from Russia. At the same time, the situation will be affected by the reduction of LNG imports to Europe. For comparison, at the end of September 2022, gas storages in EU countries were 90% full.
Earlier we reported that Europeans derailed the EU energy saving plan due to the refusal to save gas.
Europeans derailed plans to save energy and reduce EU energy consumption due to refusal to save gas
Europe has failed its first winter test of EU energy consumption because of Europeans who refused to save gas. This was stated by Bloomberg analyst Javier Blas.
“If Europe had been a schoolboy, it would have passed its first energy conservation test last week. It failed. And that doesn’t bode well for the much tougher tests that lie ahead in January,” Blas said.
According to him, the demand for gas from the population of Europe is seasonal. At the same time, the EU energy commission did not know how residents would react to the call to save money. However, the first frosts have shown that people are not ready to reduce their energy consumption. During the recent autumn cold snap in Germany, for example, residents increased their gas consumption by 14.5 percent, higher than the five-year average.
He added that the high demand for gas should be a wake-up call for the EU energy commission, which should use concrete examples to show people what they need to do to save energy. At the same time, politicians should offer all possible options to save energy and distribute them before the onset of cold weather, which could occur in the coming weeks.
Earlier, we reported that businesses predicted a 500 percent increase in energy costs in the U.K.
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