The Boston Globe: It takes a beating with high energy prices and inflation

Europe at risk due to slowing global economic growth

The European Central Bank raised interest rates by 75 basis points to curb inflation.

archival

The outbreak of the “Covid-19” pandemic, and the Russian-Ukrainian war, caused problems for all countries of the world.

But in particular, Europe has been hit hard with its biggest jump in energy prices, the highest inflation rate in the world, and the most dangerous levels of economic recession and financial crises.

For decades, the countries of the continent, led by Germany, have relied on Russian energy supplies, which makes the eight-fold increase in natural gas prices since the start of the Russian war a historical threat to the major industrial powers in Europe, and its impact extends to living standards and social peace .

Ian Goldin, a professor of globalization and development at Oxford University, warned that "income declines, inequality, and social tensions could lead to a fractured world."

For his part, chief economist at Capital Economics, Neil Schering, said that "growth is slowing around the world, but it is becoming more dangerous in Europe because it is being driven by a more fundamental economic downturn."

"Incomes and living standards are declining, and Europe and Britain are in a bad situation," he added.

anxiety in europe

Concern is also rising in Europe about closed manufacturing lines and high energy bills, after the Russian energy company, Gazprom, announced that it had stopped the flow of natural gas through the Nord Stream 1 line, which led to a rise in average daily electricity prices to record levels.

Despite the intervention of the governments of Germany, France and Finland to save local energy companies from bankruptcy, the German company Uniper, one of the largest buyers and suppliers of natural gas in Europe, said it was losing more than 100 million euros per day due to high prices.

Still, the harsh reality is the lack of energy, of which there is not enough to produce steel, wood, microchips, glass, cotton, plastics, chemicals, and a lack of electricity for food, home heating, infant formula, and other goods that Consumers want it.

Sven Smit, the principal partner at the consulting firm McKinsey & Co., believes that the reason for the shortage of goods dates back to before the Ukraine war, when commodity prices began to rise in 2020.

Smit pointed out that "there is a depleted supply chain, more than it is broken," adding: "In the past, people were afraid and stopped spending, and then when they felt comfortable spending again, so we have to restore the supply."

In other parts of the world, countries are under pressure, despite different reasons and expectations. In the United States, high interest rates, which are used to curb inflation, reduce consumer spending and growth.

However, the US labor market remains strong, while China, a powerful engine of global growth and a major market for European exports, faces challenges due to a policy of closure that has paralyzed sectors and increased supply chain disruptions.

It is noteworthy that the European Central Bank announced, the day before yesterday, the largest interest rate hike in its history to combat record inflation, as it increased interest rates by 75 basis points, to reach 1.25 points.

recession

Central banks in the West are expected to continue raising interest rates to raise borrowing costs and reduce inflation that is expected to plunge economies into recession.

Many analysts expect a recession in Germany, Italy and the rest of the eurozone before the end of the year.

Prepared by: Sameh Awad Allah

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