Robert Steinadler, 6 months ago
There is a fight going on about the truth. Earlier this year, the US government said that the country is not in a recession, while data was suggesting that the GDP was negative for two quarters in a row. All of sudden the definition changed and a public argument evolved between political factions. One was claiming that the president was right and the other that he was not and that the US economy is in a dire situation.
Yesterday Christine La Garde made a comment that was considered highly controversial by many. Is Europe in a recession or not?
It is true that past data supports La Garde’s statement. What was odd is that she claimed that everything is fine, while it becomes clear that the current situation is far from being good. Analysts believe that Europe is about to face a recession and possibly even a great depression.
In Germany, Robert Habeck prepared the public for a difficult time next year. According to him, Germany is going into a recession which is devasting news for the whole EU. The country is the fourth richest in the world according to its 2020 GDP and a driving factor in the EU’s overall economy. In addition to high inflation rates, Germany is suffering economically from the war between Ukraine and Russia being cut off from gas and oil which were supplied at cheap prices by the aggressor.
Surprisingly, both Habeck and La Garde made their statements almost at the same time, which reveals the deep disconnect between reality and La Garde’s remarks.
The UN already warned the Fed that if it’s going to pursue its current policy, the world could get become a much darker place. While the world’s richest countries will lose their status, the poorest might face dire consequences and it could take decades for them to recover.
The IMF confirmed this view by pointing out that a strong Dollar is a challenge to emerging markets. At the same time inflation remains the major factor in crushing the economies and needs to be addressed.
With high energy prices and the unwillingness of Saudi Arabia to increase oil production, the overall outlook is not looking too good. On the other hand, should the war in Ukraine resolve either through negotiations or a decision on the battlefield, things could indeed turn around. The fact that Russia is weaponizing energy prices contributes largely to the problems. Without this pressure, the world would have to deal with less inflation which would result in a way lower impact.
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