With galloping inflation and shrinking economic activity, are we headed for recession?
It seems a long time ago when some dreamed of new Roaring Twenties following the Covid-19 epidemic. The prospects for economic recovery were exciting and lights were green around the world. The ace ! The invasion of Russia by Ukraine on February 24 turned this beautiful scenario upside down, causing an unprecedented energy crisis, a world food crisis, an increase in the cost of many raw materials and, ultimately, galloping inflation which might reach 10% for consumers on supermarket shelves.
Inflation is currently around 6% and it should continue to increase by the end of the year, as admitted in early August by the Minister of Economy, Finance and Industrial and Digital Sovereignty, Bruno The Mayor, who wanted to be reassuring, however, ensuring that he was “good hope” regarding “a decline in inflation” at the beginning of 2023.
In Germany, a “probable” recession according to the Bundesbank
However, this situation has contributed to a slowdown in economic activity and therefore to the drop in growth. The prospect of seeing a fall in gross domestic product (GDP) over at least two consecutive quarters would therefore lead us into a recession.
On Monday, the euro fell back below parity with the dollar for the first time since mid-July. Joachim Nagel, the president of the German Bundesbank, judged “probable” a recession in Germany during the winter if the energy crisis worsens. “The probability of a recession in Germany is growing and inflation might peak at more than 10% this fall, estimated Monday the Bundesbank in its monthly report.
And the outlook elsewhere in 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 plunging the world economy in stagnation, if not recession, without managing to curb inflation whose structural causes are piling up (less dynamic globalization, ecological transition and wage catch-up)”, explain in The Conversation Isabelle Bensidoun and Jézabel Couppey-Soubeyran, coordinators of the book “The World Economy 2023” to be published on September 8.
The French economy “tipped into a contraction zone”
According to a provisional indicator published Tuesday by S&P Global, the Global PMI, the French economy “tipped into contraction zone for the first time in almost a year and a half” in August. The composite flash index of global activity, which measures activity in the private sector, fell back in August to 49.8, once morest 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 field of services, cutting short the post-Covid rebound. “The fall in production is now being seen across a range 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 PMIs in August suggests that a recession over the winter semester is increasingly likely, predicted Christoph Weil, economist at Commerzbank interviewed by Archyde.com.
But the morale of French households is rebounding
The only positive point is that household morale in France has rebounded. In August, household confidence improved slightly following 7 consecutive months of decline. At 82, the indicator which synthesizes it increases by two points but remains well below its long-term average (100 between January 1987 and December 2021)”, indicates INSEE.
The French seem to retain a little optimism on the evolution of prices: “The share of households believing that prices will accelerate over the next twelve months is falling once more, more markedly than the previous month: the balance corresponding loses eight points. It nevertheless remains well above its long-term average”.