The energy crisis is pushing Europe into recession, says asset manager BlackRock. Besides the fact that Russia has effectively turned off gas, the ECB doesn’t really want to see that it has to do serious damage to economic growth in fighting inflation. BlackRock believes the ECB will repent at some point, but a deep recession is inevitable.
The EU currently spends 12% of GDP on energy costs, making the crisis more acute now than it was in the 1970s. BlackRock said some states have promised rationing, but even that won’t lift the economy. This winter, gas supplies will dwindle and countries are taking all kinds of measures to ease the pain, especially for families. Compared to the United Kingdom, the plans of the European Union are limited, so that the recession will continue for a while.
way too optimistic
The European Central Bank is exacerbating a recession because, like the Federal Reserve, it is unwilling to acknowledge declining economic growth in its battle to contain inflation — even after last week’s rate hike. In contrast, according to BlackRock, ECB policy is primarily a response to high inflation, driven by energy prices. In the latest – and according to the already meaningless BlackRock scenario – of 2023, the ECB is still assuming modest growth. BlackRock thinks this is overly optimistic and assumes a 0.9 percent contraction.
The fact that the euro is historically low against the dollar reflects the slowdown in economic growth due to higher energy prices. BlackRock expects the European Central Bank to continue raising interest rates until the end of 2022 and to stop only when the economy contracts sharply. On the other hand, the Bank of England realizes that high inflation cannot be brought down without a deep recession. Government measures may be able to ease the blow of the recession, but they do not solve the imbalance between supply and demand. Therefore, the Bank of England will essentially raise interest rates to balance supply and demand.
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