Economists claimed that the war in Ukraine and the resulting economic sanctions imposed on Russia will lead to a transformation of the economy and markets in Far greater Europe than in previous crises such as the coronavirus pandemic.
In light of Russia’s unprovoked war on Ukraine, European leaders have been forced to accelerate their plans to reduce their heavy reliance on Russian energy. On Thursday, the European Parliament called for an immediate and global ban on Russian oil, coal, fuel and gas.
However, this strong chapter is costly for the European economy as it has pushed already high inflation to levels record and threatens to undermine the manufacturing recovery that began last year when economies tried to get out of the Covid-19 pandemic, according to a report by the American network CNBC, seen by “Al Arabiya Net” “.
Karsten Brzeski, head of global research at ING, noted last week that Europe is at particular risk of losing international competitiveness due to war.
“For the continent, the war is far more revolutionary than it was during the pandemic.” “I’m not just talking in terms of security and defense policies, but in particular of the whole economy, “said Brzeski.
Chief strategist David Roche explains why Europe is likely going in recession: “The eurozone is now experiencing the downside of its basic economic model, which is an export-oriented economy with a dependence on large industrial production based on energy imports.”
Having benefited from globalization and the division of labor over the past decades, the eurozone must now step up its shift to green energy and seek its energy independence, while increasing spending on defense, digitization and education. Brzeski described this as a challenge that “can and should work”.
If and when that happens, Europe should be in good shape, but the pressure on household finances and incomes will remain enormous until they can achieve their goals. Meanwhile, corporate profits will remain high.
Europe is facing a humanitarian crisis and a major economic transformation. The war takes place in a country considered the “bread basket” of Europe, an important one area of wheat and corn production. Food prices will rise to unprecedented levels and rising inflation could be a matter of life or death in economies in via of development.
Brzeski concluded that financial markets were “misleading” as European equities attempted to recover, adding that “for the moment there is no return to any kind of normalcy”.
Economists recognize that this transformation of the European economy, e in effects of the global economy, will put further pressure on central banks and governments trapped between a rock and a difficult place to reconcile inflation and fiscal sustainability.
In a statement Thursday, BNP Paribas predicts central banks will face a more difficult environment in to implement policy and keep inflation targeted, not only to reduce their ability to stick to a particular policy path, but also to make monetary policy errors more likely.
Raising interest rates to curb inflation will make life difficult for financial authorities.
Although this is not an immediate concern, also because governments have generally lengthened the average maturities of their debt in years of low interest rates, the environment of higher interest rates can also change the tax calculation.
Low inflation over the course of the eurozone’s recent history meant that the ECB was never forced to choose between fiscal sustainability and pursuit of inflation targets, as low inflation required an accommodative monetary policy that fostered fiscal sustainability.
“Politically, the ECB was in able to dismiss allegations of aiding governments by pointing to low inflation results, “said Spiros Andriopoulos, chief European economist at BNP Paribas.
“This time around, the European Central Bank should tighten policy to curb inflation against the backdrop of high public debt, the legacy of the pandemic and continuing pressures on public finances.”
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