A major danger looms over European economies. While banks are preparing to stop raising interest rates, the nightmare of stagflation, where prices remain high and economic growth is almost zero, is sweeping Europe.
As policymakers prepare to wrap up rounds of monetary policy tightening, more and more evidence is emerging that points to declining economic growth and stubbornly difficult inflation to persist, writes Bloomberg, quoted by Business Store, according to Mediafax.
As central bankers know all too well, even if they shy away from saying it out loud, this label for the headache of weak expansion and relentless inflation that plagued the 1970s is a host of problems—even in its most extreme form. easy.
“The euro zone is stuck in stagflation and we won’t get out of it anytime soon. In the UK, everything is going wrong,” said Karsten Junius, chief economist at Bank J Safra Sarasin in Zurich.
The market’s response so far suggests lingering concerns that central banks are losing their appetite to keep raising borrowing costs regardless. Thursday’s data, which showed price growth cemented above 5% in the euro area, was met with little optimism amid growing bets on a new round of interest rate hikes in two weeks’ time. .
This problem was accentuated by the comments of the official of the European Central Bank, Isabel Schnabel – the head of markets in this institution – who admitted that the economic outlook is getting worse, while insisting on the fact that inflation is “stubbornly high”.
The Bank of England’s chief economist, Huw Pill, used the same words to describe the level of growth in basic consumer prices in Britain, while warning his colleagues not to cause “unnecessary damage” to the economy.
Eurozone policymakers will be the first to judge where the threats lie, with the September 14 decision described by Finnish official Tuomas Valimaki as “totally open” on the need for another rate hike. The BOE will meet a week later, a day after the Fed.
The current conjuncture brings back to the present the concerns that troubled the region when it first faced the specter of rising gas prices following Russia’s invasion of Ukraine.
When G-7 finance chiefs met in May 2022, they discussed what needs to be done to “avoid stagflation scenarios,” as the meeting’s host, German Finance Minister Christian Lindner, put it.
This alarm sounded again after the July meeting of the ECB, where the reduction of inflation was applauded, but the fact that it is still at a high level and that it remains toxic for the economy for a long time was emphasized.
“Concern was also expressed that the economy could enter a phase of stagflation, in contrast to a more benign scenario,” according to the bank’s notes.
Such concerns are clouding financial markets after a series of reports pointing to weakening economic growth in Britain and the euro zone – such as a decline in purchasing managers’ indices – and stronger-than-expected inflation in Europe’s two biggest economies continental, Germany and France.
“We know that the monetary policy works and that it has effects in the economy, but at the moment we have no impact on inflation. That’s the biggest problem we have. We are facing a stronger economic slowdown than in the US and an inflation that is much harder to beat,” said Gilles Moe, chief economist at AXA Investment Manager.
2023-09-02 08:31:11
#Europe #verge #bankruptcy #benign #scenario #Source #news
