Sunday, October 1, 2023

Inflation and investor ammunition

Macroeconomic data is currently very volatile. Due to the current changes, the various institutions have reviewed their forecasts in recent months. There are no irrefutable certainties. The economy works with resources that are not subject to a static principle of law: the behavior of economic actors and consumers, which is not always predictable. Therefore, it is not easy to hit the center of the target or get close to it. In this context, at the time of writing, it is unknown what position the European Central Bank (ECB) will take at its meeting this week: further increase or maintain interest rates. The regulatory crossroads are total. And this has been seen since July 2022, when interest rate hikes began to curb double-digit inflation.

The ECB has applied a strict dosage, as if prices had been raised by increasing demand: it has raised interest rates on various occasions. The reality: There were supply bottlenecks – for example in the energy sector; but not only – along with increasing business margins – a fact highlighted in various reports from the ECB itself: salaries are hardly responsible – which has brought prices to a certain peak. Persistence in this monetary policy rigor can trigger a recession, the ears of which can already be seen in the capricious macroeconomic indicators that we have pointed out. We have pointed this out in other deliveries. It has to be said that prices in the Eurozone have fallen by almost half in a year, from just over 11% twelve months ago to just under 5.5% today. The latest forecasts for economic growth in the Eurozone, in turn, point to scenarios of a significant slowdown in Germany and France. Spain is initially saved from burning, both in terms of the variables of GDP growth – one of the highest in the European area – and price control – one of the lowest.

Concrete measures in the face of this looming recession, which is being exacerbated by a restrictive monetary policy, with Germany – the locomotive – as the protagonist: an investment program of almost 32 billion euros. That is the amount that the German Chancellor wants to raise, not without internal tensions within his own cabinet and under the strict eye of the Bundesbank. The topic refers to positions that should be more federalist (i.e. more Europe): the possibilities of deepening fiscal unions on the territory of the EU with an expansion of the methodology used as a result of the pandemic. Extension of NGEU projects. This means: mutualizations both in the investment area and in the chapter on public debt and the ECB’s measures in this area. Investment ammunition will – as the ECB has recognized – continue to be a way to solve already serious declines in demand, with a development that could change direction in a few months. A fact that would be equally worrying: from a downward trend in inflation to the threat of deflation.

Nation World News Desk
Nation World News Desk
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