Dvojna (in povsem nepotrebna) katastrofa na vidiku. Katastrofa, ki bi se ji bilo mogoče izogniti, če bi imeli opravka s pametnimi političnimi voditelji.
“Many German manufacturers are warning that they will have to close down production completely if energy inputs dry up. Petr Cingr, the chief executive of Germany’s largest ammonia producing company, and a key supplier of fertilisers and exhaust fluids for diesel engines, warned of the devastating consequences of the ending of Russian gas supplies. “We have to stop [production] immediately,” he said, “from 100 to zero.” According to UBS analysts, no gas for the winter will result in a “deep recession” with GDP contracting 6 percent by the end of next year. Germany’s Bundesbank has warned that the effects on global supply chains of any Russian cut-off would increase the original shock effect by two and a half times. ThyssenKrupp, Germany’s largest steelmaker, has said that without natural gas to run its furnaces “shutdowns and technical damage to our facilities cannot be ruled out.”
And it’s worse. Inflation is still rising in most European economies. So the European Central Bank (ECB) has decided that it must act to raise interest rates sharply. It pushed up its policy rate by 50bp last week, more than expected, taking the rate into positive territory for the first time in a decade. The days of ‘quantitative easing’ have been replaced by ‘quantitative tightening’.
But this move comes at the worst time for countries like Italy, highly dependent on Russian energy. Last week, the technocrat former ECB chair, Italian prime minister Mario Draghi was forced to resign when several parties in his coalition government withdrew their support; some because they opposed his support for military aid to Ukraine; and some because they saw their chance to win an election. Italy has a very large public debt ratio to its GDP. “
The major economies are moving closer to recession, if they are not already there; and yet inflation rates continue to rise (for now). The latest surveys of business activity, called Purchasing Managers Indexes (PMIs), show that both the Euro area and the US are now in contraction territory (i.e. any level below 50). The composite PMIs (which put together both manufacturing and services) for the major economies in July show:
US 47.5 (contraction)
Eurozone 49.4 (contraction)
Japan 50.6 (slowing expansion)
Germany 48.0 (contraction)
UK 52.8 (slowing expansion)
Nobody should be surprised by the Eurozone score, given the impact of sanctions on Russian energy imports, which is severely weakening industrial production in the core of Europe (see below). Germany’s industrial production has been contracting for over three months.
The big shock was in the US. The US composite PMI also fell into contraction territory at 47.5 in July, down sharply from…
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