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| European Union officials expect growth to slow in countries across the continent. |
The downhill may be shallow or steep, but the European Union and the UK may be starting to slip into recession.
The Office for National Statistics reported on Friday that the UK economy contracted by 0.2% in July, August, and September compared with the past three months. The decline is expected to continue and spread across the continent by the end of the year.
European Union economic commissioner Paolo Gentiloni said on Friday that many countries will likely fall into recession in the final three months of 2022. "The E.U. economy is at a tipping point," he said. "Recent survey data points to a winter contraction."
But while the UK's central bank has warned of a "protracted" recession lasting up to two years, the European Union expects its 27 member states to face a "short-lived and not overly severe" recession.
In fact, Gentiloni said he expects the union to end 2022 with a better-than-expected growth rate of 3.3%, but that total could drop significantly to just 0.3% next year. high.
Different outlooks show that the economic fallout from the pandemic and Russia's aggression against Ukraine unevenly affect other countries in the region.
The UK and EU are suffering from a twin epidemic of rising inflation and slowing or falling growth. War and retaliatory sanctions against Russia, one of the world's largest producers of energy and grains, have sent global fuel, food, and fertilizer prices skyrocketing. Pandemic-rooted supply chain disruptions and ongoing Covid-19 lockdowns in China (most recently in Guangzhou's manufacturing hub) add to the mountain of economic problems, as do climate-related disasters. It has been.
In Germany, Europe's largest economy, annual inflation reached 10.4% in October, according to one measure. In the UK, inflation hit 10.1% in September, the highest in 40 years, and is expected to rise further before peaking. The BBC's interactive radio talk shows are dominated by people worried about not being able to afford the heating and lighting of their homes.
On Friday, Treasury Secretary Jeremy Hunt declared that "a difficult road lies ahead" and that "extremely difficult decisions will need to be made to restore confidence and economic stability". rice field.
Preliminary estimates from the Office for National Statistics show that the UK's slowdown is broad-based, including in the production and services sectors, meaning the country's gross domestic product or output is below pre-pandemic levels. doing. The decline was particularly steep in September, down 0.6% from the previous month, although the number was impacted by the death of Queen Elizabeth II.
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| Customers in a Viennese cafe. The UK and EU are suffering from a twin epidemic of rising inflation and slowing or falling growth. |
The quarterly contraction was weaker than expected, with economists surveyed by Bloomberg expecting a 0.5% drop. Still, after the announcement, UK 10-year bond yields dipped briefly before rising to 3.33%. . A recession is traditionally defined as a significant decline in economic activity lasting several months.
The Bank of England has stressed its determination to stem inflation by raising interest rates even at the risk of a recession, but has suggested it is unlikely to raise interest rates as much as traders had expected. . Last week, banks raised key interest rates again, predicting the UK economy will contract later this year and continue to contract until mid-2024.
Higher interest rates could lead to higher borrowing for mortgages and investments, restraining spending by both businesses and consumers, and increasing unemployment.
But the UK economy is also suffering from a string of self-harm by the ruling Conservative Party. The widely criticized economic plan proposed in September by then-Prime Minister Liz Truss included underfunded drastic tax cuts and massive spending to help households pay for rising energy bills. increased, disrupting financial markets.
The ensuing political and economic instability resulted in a surprising policy reversal and Mr. Truss' resignation. New Prime Minister Rishi Sunak and Hunt are due to announce economic policies next week, which are expected to include tax increases, spending cuts, and debt relief.
Pantheon Macroeconomics predicted that the package "will strengthen the UK's bleak economic outlook".
Economists and analysts widely agree that the UK's decision to leave the EU in 2016 was a long-lasting blow to the UK economy.
Few countries in the European Union are expected to experience negative growth next year, but the prospects are grim for Germany, which has been hit hard by Russia's pipeline gas losses. The European Union expects the economy to contract by 0.6% in 2023.
Across Europe, inflation is expected to persist at higher levels than previously forecast. What Mr. Gentiloni calls “good news” is that the labor market remains strong.
Employment is below pre-pandemic levels in the UK, with about 2.5 million people out of the workforce due to long-lasting illness.
Christmas lights are lit up across London, but the Bureau of Statistics reported that fewer consumers visited shopping centers and main streets across the country last week than in previous weeks. Consumer confidence has hovered near record lows while businesses are reporting a decline in orders. Mortgage interest rates rose last month, reducing the number of people looking to buy a home.
In its daily newsletter, the Pantheon wrote, referring to the world's largest group of advanced economies, "The UK economy has slipped behind the G7 pack once again."