The Day at a Glance | Sep 19 2022

The Top

*Risks of a recession in Europe occurring in the next 12 months set at 80%, according to a Bloomberg survey.

*31 of China`s provinces logged fiscal deficits in the first 7 months of the year.

*The Eurozone`s economic slowdown is not enough to weaken inflation: Luis de Guindos, Vice-President of the ECB.

*Biden affirmed that he will defend Taiwan in case China attacks; he reconfirmed he will back Ukraine for however long necessary.

Economic environment

Recession in Europe is “inevitable”. According to Bloomberg, 80% of a group of surveyed economists expect a recession to occur in Europe in the next 12 months. This is the greatest risk of a recession since the start of the pandemic (July 2020). Germany is expected to be one of the first countries to enter a recession as soon as late 2022 – as the region is preparing to ration natural gas during the winter once supply from Russia is cut. Factories could see a decrease in production in light of power cuts and energy rationing among essential and high priority sectors. The emergency is so likely to occur that Brussels made a draft bill this week that would give the European Commission special emergency powers to avoid the flow of goods and services from coming to a halt during the crisis. Its intention is to avoid unilateral decisions of member countries from affecting the region`s security, just like it did during the pandemic. The final goal is to create cooperation mechanisms in order for the single European market to function properly. In Germany, Chancellor Olaf Scholz will travel to the Middle East in order to close power supply negotiations and reduce its dependency on Russia. For Europe`s population, energy rationing will be another factor that will affect quality of life – in addition to high inflation and production chain disruptions, which have created scarcity. In this environment, economies expect inflation to reach its peak in the last quarter of the year at a 9.6% annual rate. The Eurozone`s interest rate is expected to set at 2% in February and will remain at said level for a long period of time. In the words of the European Central Bank`s Vice-President, inflation is becoming more structural as the economic slowdown is not enough to relieve inflationary pressures. For many, a recession in Europe is inevitable in light of an energy crisis and increasing interest rates.