Rising prices, falling activity… These signs raise fears of a recession at the end of the year

Rising prices, falling activity... These signs raise fears of a recession at the end of the year

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With runaway inflation and declining economic activity, are we headed for a recession?

It seems like a long time ago when some dreamed of a new Roaring Twenties after the Covid-19 epidemic. The prospects for economic recovery were exciting and the lights were green around the world. the ace ! Ukraine’s invasion of Russia on February 24 turned this beautiful scenario upside down, causing an unprecedented energy crisis, a global food crisis, an increase in the cost of many raw materials and, ultimately, galloping inflation that could reach 10% for consumers on supermarket shelves.

Inflation is currently around 6% and should continue to rise at the end of the year, as admitted at the beginning of August by the Minister of Economy, Finance and Industrial and Digital Sovereignty, Bruno El Mayor, who wanted to reassure, however, assuring that he had “good hopes” about “a decline in inflation” in early 2023.

In Germany, a “probable” recession according to the Bundesbank

However, this situation has contributed to the slowdown in economic activity and therefore to the drop in growth. The prospect of a drop in gross domestic product (GDP) for at least two consecutive quarters would therefore lead us to a recession.

On Monday, the euro fell back below parity with the dollar for the first time since mid-July. Joachim Nagel, president of the German Bundesbank, judged a recession in Germany during the winter “likely” if the energy crisis worsens. “The probability of a recession in Germany is growing and inflation could peak at more than 10% this fall, the Bundesbank estimated in its monthly report on Monday.

And the panorama in the rest of Europe is worrying. “Growth forecasts are regularly revised downwards and monetary tightening to fight inflation, which reached 9.1% in the United States and 8.6% in the euro zone in June 2022, risks plunge the world economy into stagnation, if not recession, without succeeding in curbing inflation. whose structural causes accumulate (less dynamic globalization, ecological transition and salary recovery)”, explain in The Conversation Isabelle Bensidoun and Jézabel Couppey-Soubeyran, coordinators of the book “The World Economy 2023” that will be published on September 8.

The French economy “fell into a contraction zone”

According to an interim indicator released Tuesday by S&P Global, the Global PMI, the French economy “entered a contraction zone for the first time in almost a year and a half” in August. The flash composite index of global activity, which measures activity in the private sector, fell in August to 49.8, from 51.7 in July. The eurozone’s global PMI index also fell to 49.2 points, its lowest level in 18 months…

S&P Global points in particular to the sharp drop in activity in the area of ​​services, truncating the post-Covid rebound. “The drop in production is now being seen in a variety of sectors, from basic materials and automotive companies to tourism and real estate companies,” says Andrew Harker of S&P Global Market Intelligence. “The continued decline in the PMIs in August suggests that a recession during the winter half is increasingly likely,” Commerzbank economist Christoph Weil said in an interview with Reuters.

But the morale of French households is recovering

The only bright spot is that household morale in France has recovered. In August, household confidence improved slightly after 7 consecutive months of decline. With 82, the indicator that synthesizes it rises two points but remains well below its long-term average (100 between January 1987 and December 2021)”, indicates the INSEE.

The French seem to retain a bit of optimism about the evolution of prices: “The proportion of households that believe that prices will accelerate in the next twelve months falls again, more markedly than the previous month: the corresponding balance loses eight points. However, it remains well above its long-term average.”

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