European officials anticipated that 2023 would mark the return of the "old continent" to its previous norm of acceptable growth and inflation below 2%. The economy of Europe is undoubtedly slowing down. However, the new normal is much less appealing than economists had anticipated.
On the plus side, since prices surged last summer, gas is currently less expensive than it was before the conflict. Partly as a result of the abnormally warm weather, governments were not forced to ration energy as had been initially feared. After reaching a record 10.6% in October, headline inflation is now declining.
Neither has industry collapsed due to gasoline prices, as conspiracy theorists prophesied. Since the start of the war, energy-intensive factories in Germany have suffered a reduction in output of a fifth as imports have replaced domestic production. By the end of the year, however, overall production had decreased by barely 3%, in accordance with the pre-pandemic norm. The most recent ifo survey reveals that manufacturers are still confident about the future.
The giant job market in Europe can increase inflation. Pay demands are rising as a result of high costs and labor shortages, which are anticipated to get worse as baby boomers retire and fewer young people join the workforce. After only increasing by 3.3% in 2022 and 2.1% in 2021, salaries in the Netherlands increased by 4.8% in January compared to a year earlier. The unions in Germany's public sector are threatening additional strikes.
In the year to January, the consumer price index increased by 7% without accounting for food and energy. According to the PMI poll, expenses are rising rapidly for services in particular, which could result in more price hikes. The European Central Bank is thus forced to maintain its high-interest rates. Markets anticipate a summertime increase from 2.5% to 3.7%. So, funding for businesses and people is likely to become more expensive, which would hurt investment. According to the bank's lending survey, credit criteria are already becoming stricter.
https://www.economist.com/finance-and-economics/2023/02/23/what-war-has-done-to-europes-economy
With the Russia-Ukraine war, which has been going on for quite some time, if countries in Europe are not already helping either side, you'd think that Russia and Ukraine are pleading for help by now. I wonder if we will see an increase in all of these numbers soon?
ReplyDeleteConsumers seem to have been hit especially hard by the war considering the CPI increase. Though it was not as bad of a shift as people had anticipated, Germany and other Western European countries have grown tired of the war due to volatile gas prices. Do you think that the EU will push for peace talks in the Ukraine soon to mitigate the damages to consumers from these harmful (yet necessary) protectionist policies?
ReplyDelete