December 9, 2022

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International press: Eurozone almost certain to enter recession, polls show worsening cost of living crisis

The euro zone is almost certain to enter a recession, with surveys published on Monday showing a worsening cost-of-living crisis and an unfavorable outlook that will make consumers reluctant to spend, reports Reuters.

Although there has been some easing of price pressures, according to surveys, they remain high and the European Central Bank (ECB) is under pressure as inflation is more than four times the official target of 2%, hitting a record high of 9% last month .1%, writes News.ro.

The bank is faced with the prospect of an aggressive increase in interest rates just as the economy is entering a recession.

A rise in borrowing costs would add to the woes of indebted consumers, however, in a Reuters poll last week, nearly half of economists polled said they expected an unprecedented hike in the ECB’s key interest rate, from 0, 75 percentage points this week, while nearly as many forecast a 0.50 point increase.

Despite those expectations, the euro fell below 99 US cents per ounce on Monday for the first time in 20 years after Russia said gas supplies through the main Nord Stream 1 pipeline to Europe would remain shut indefinitely.

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Gas prices on the continent rose as much as 30% on Monday, stoking fears of a shortage and strengthening expectations for a recession and a tough winter, with businesses and households hit by high energy prices.

S&P Global’s final Purchasing Managers’ Intentions Index (PMI), which is seen as a guide to economic health, fell in August to an 18-month low from 49.9 in July, falling below preliminary estimate of 49.2. Any level below 50 indicates a contraction. “PMI surveys signal that the euro zone is entering recession earlier than we previously thought, led by its largest economy, Germany, and now we see that the euro zone will go through a longer, three-quarter recession,” he said Peter Schaffrik, economist at the Royal Bank of Canada.

That prospect of a recession hit investor confidence in the euro zone, which fell in September to its lowest level since May 2020, another survey showed.

Services activity in Germany, Europe’s largest economy, contracted for a second consecutive month in August as domestic demand came under pressure from rising inflation and weakened confidence, earlier figures showed.

Germany’s economy is on course to contract for three straight quarters starting in the current quarter, a Reuters poll suggested last week.

In France, the euro zone’s second-largest economy, the services sector slowed and managed only modest growth, with purchasing managers saying the outlook was difficult.

Italy’s services industry returned to modest growth, but in Spain activity expanded at its slowest pace since January, as companies worried that inflation would hurt profits and customer demand.

In Britain, the economy ended August much weaker than previously thought as overall business activity contracted for the first time since February 2021 in a clear sign of recession, its PMI showed.

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