The eurozone is officially in a recession, and according to BNR’s in-house economist Han de Jong, there’s plenty to worry about. “It’s an illusion to think you can get inflation back to 2% without suffering economic problems.”
Even though the economic contraction in the eurozone is modest, 0.1 percent in both quarters, economic indicators still point to a bad economic climate. As far as De Jong is concerned, the great tension on the labor market does not guarantee that the recession will be mild. Historically, recessions often start when unemployment is low and then ramp up. Sometimes very strong.’
Historically, recessions often start when unemployment is low and then ramp up. Sometimes very strong.’
Data from Statistics Netherlands shows that industrial production is 12% lower this year than a year earlier. De Jong: ‘I was shocked’. Also, companies report increased inventories and decreased orders, De Jong warns of a spiral effect. “He remembers that industry is usually ahead of the rest of the economy.”
Due to high energy costs, energy-intensive sectors show a greater decline in economic activity. According to De Jong, this could even be permanent, because even now that energy prices have fallen, a full recovery is not visible. This is concerning because labor productivity in these sectors is much higher than elsewhere in the economy. “Then you are talking about very high quality economic activity and very high quality employment.”
China and central banks
Even the reopening of the Chinese economy after the severe coronavirus restrictions has not had the desired effect on our economy. Although Beijing still hopes to get the economy moving with stimulus, the economist would have preferred the recovery to happen naturally. “If it only comes back when stimulated, it’s not sustainable either.”
The ECB is due to announce a new interest rate decision on Thursday. While the US Fed is not expected to make another hike on Wednesday, a fresh hike is likely in Europe as inflation remains high. “Normally, a sharp slowdown in growth, in many cases a recession, and often a bad recession, is needed to fend off inflation.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
