The projected recession in Europe and the US will deepen further as major central banks such as the US Federal Reserve (Fed) and the European Central Bank (ECB) will cut their money taps to fight inflation in the midst of an energy crisis. aggravated by the war and the climate crisis. Warnings from major institutions of the world economy state that it will not be easy to get rid of high inflation and that monetary policy decisions by central banks, which seek to maintain their independence, will reduce inflation and cause economic damage to one hand. . At the Jackson Hole symposium, central bankers issued similar warnings and said the global economy was entering a new and more difficult period.
“A PERIOD IS COMING IN WHICH SUPPLY SHOCKS WILL BE MUCH MORE VOLATILE”
Central banks, in the words of Gita Gopinath, deputy director of the International Monetary Fund (IMF) “For at least five years, it will have a much more difficult time than 20 years before the pandemic.” Stating that supply shocks will be much more volatile than we are used to, Gopinath said this will make the decisions that need to be made by central banks even more difficult.
“THE INCREASE IN INTERESTS, THERE WILL BE RAW IN THE SUPPLY AND PRODUCTION CHAIN”
Deferred demand and unprecedented monetary expansion following the COVID-19 quarantines have brought inflation to historic records in many economies, and prices have soared on both the energy and food sides with the Russian invasion of Ukraine. World Bank President David Malpass pointed out that central bank tools, especially in developed economies, are not well suited to reducing supply-driven inflationary pressures. “The increase in interest will compete with many problems in the economy. Even if you raise interest rates in hopes of lowering inflation, the more difficult the supply chain and the production cycle will be. “ he used his claims.
INFLATION DOES NOT MAKE RECORDS, THE ECB WILL BE FORCED
The gas crisis, which stopped for 3 days in Nord Stream 1, is one of the biggest challenges in the ECB’s fight against inflation. According to pioneering data from Eurostat, consumer prices in the Eurozone rose 9.1 percent year-on-year in August, exceeding expectations, once again renewing the all-time high. Inflation, which was 8.9% in July, is expected to rise to 9% in August. In Nord Stream 1, which is scheduled to reopen on 2 September, capacity has already dropped to 20% and the indicator gas has increased from 20 euros in the TTF 2020 to 340 euros / MWh. Additionally, union core inflation rose 5.5 percent, above expectations. Core inflation is expected to remain at 5.1% in August. The ECB, which is expected to raise interest rates by 75bps at its September meeting, will have to make tough decisions as it tightens its monetary policies in the Eurozone, where recession is almost inevitable due to the gas crisis. As the dollar index climbed back above 109 on Wednesday, the euro / dollar parity, which failed to move away from level 1 due to the gas crisis, dropped to the 0.9971 level at 17:26 IST. The gas jump has also made the electricity market impractical – in the words of European Commission President Ursula von der Leyen.”And the EU energy ministers, who will meet on 9 September, are preparing to intervene on the electricity market with a maximum price ceiling supported by economies such as Belgium, Czechia and Italy.
“MORE WITHDRAWAL, opportunities for entry into raw materials”
US investment bank Goldman Sachs advised investors to buy commodities at current levels and not worry about a recession later on. At a time when equity markets and other risky assets were losing money with the risk of a short-term recession, the bank said: “Our economists see the risk of a recession over the next 12 months outside Europe as relatively ‘low'” . It also states in its note that oil prices, used as a last resort in a time of severe energy bottlenecks, are an entry opportunity for long-term investments.