The collapse of Europe has begun…
Inflation in Europe is far too high, and a recession is looming over its economy as companies and consumers face a humanitarian crisis this year and the next.
The European central banks have been raising their interest rates aggressively for the last 4 meetings, making this the highest increase in interest rates over the past 20 years.
The governing council took a decision on Thursday, the 8th of September, to raise interest rates by 75 basis point in this month and further months.
The European Central Bank’s monetary policy decisions were released minutes after the governing council meeting.
The decision has been made. However, are aggressive interest rates more likely to cause long-term damage to the region’s economy?
In this video, we will break down the reasons why and the short and long-term results of higher interest rates on the European economy.
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The average inflation rate in the Euro zone is 9.1%, and it’s expected to grow more due to the geopolitical tension between Russia and Europe.
At the same time, the consumer’s situation is getting worse, and their buying power has declined significantly.
Market experts believe that the region’s economy will crash by the end of this year due to a sharp increase in energy prices and low food supplies.
Looking back, Western sanctions against Russia prompted an aggressive response from Russia, which accounts for 60% of total European gas and energy imports.
Due to its military invasion and the sanctions that followed its action, Russia has weaponized its energy weapon.
Since then, energy prices have surged by 80%, which has affected consumer purchasing power and income.
Consumers’ purchasing power has been reduced in the last four months as a result of rising energy prices.
Experts believe that it will take the European central bank more than 2 years to tame inflation and reduce it to below 2.3%.
Inflationary pressure is at its highest level, for the first time in the past 40 years, and it’s not slowing down anytime soon.
Strategists have been forecasting that this year is very likely the worst performing year in the Euro economy since 2018.
However, after a good rebound in the second quarter, this estimation has decreased slightly.
Experts from Goldman Sachs and UBS group banks are expecting the worst and poorest return in the equity market since the last recession.
The impact of soaring prices, supply chain disruption, and a poor labor market are more likely to cause serious damage to the global economy.
In Europe, the big four economic countries’ GDP growth has been forecasted, and the number has turned negative.
France, Italy, Germany, and Spain will all see a decline in their annual growth in 2023 and the first half of 2024.
England’s prime minister and health department released a troubling note about an upcoming humanitarian crisis that could lead to death in some extreme cases.
Market analysis believes that the crisis that will hit England will expand to other countries such as Germany and France.
Russia decided to cut gas supply to some countries and reduce its supply to others until they agree to its condition.
Soaring energy prices will only lead to soaring inflation rates, which will be an impossible task for European central banks to tackle.
In any case, the European central banks will keep raising their interest rates for a long period, estimated at 2 years.
The European Bank’s officials are aiming for 8.1% inflation by the end of 2022, 5.5% in 2023, and 2.3% by the end of 2024.
Between now and then, nothing can guarantee that the banks will succeed in taming inflation, especially when the market volatility is too high.
The euro has fallen to its lowest level in 20 years when compared to the US dollar.
The European currency is becoming less appealing to traders as European stocks, particularly technology stocks.
That being said, it’s more likely to see a short-term recession in 2023 for all the mentioned reasons.
However, even if the risk is high, the banks will keep raising interest rates in further meetings at aggressive rates.
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