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Wednesday, November 30, 2022

welcome to the stagflation recession

Some still hoped that the European Central Bank’s (ECB) traditional (and sulfated) economic measures would yield results. To increase the interest rates of central banks means to follow the recipe, it is to work with the little book; Even if European citizens suffer from it.

Two important decisions are expected this week that will mark the immediate future of millions of Europeans ahead of a vote with global implications for the United States. On Thursday, the ECB will tell us whether it will increase its reference interest rate by 50 or 75 basis points. No one doubts that this will increase it, but what is still being debated is whether it will canvas its economy.

If the ECB raises the rate by 75 points, it is almost a fact that Europeans will start 2023 with an indefinite period of stagflation. If he only makes it 50 points, he probably won’t get a knockout; But the rise in prices will be difficult to control. These are the risks of using conservative measures that worked decades ago but may not work today.

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According to Eurostat data, average inflation in the eurozone rose to 10.7% in October. This data represents a huge jump from 9.9% in September and a blow to confidence as it was expected to reach 10.2%. This is the biggest annual increase ever recorded.

Just yesterday, Eurostat also revealed that the euro area economy grew barely 0.2% in the third quarter. Although the data is still developing, it is not comparable with growth of 0.8% in the second quarter, nor that 0.6% in the first quarter of 2022.

Many European analysts say the region’s economy has already entered a stalemate, which, in case you didn’t know, is a combination of high inflation rates with economic decline.

Although in Europe they are already taking this complex scenario lightly, the impact on employment is yet to be seen not only in that region but also in the United States. Non-farm employment data for tomorrow, Wednesday, September will be released and, although it is still positive, it may show a break. It is estimated that 200,000 jobs were created last month, but that figure is down from 263,000 in August.

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If this figure is worse than estimates, we could see that the US Federal Reserve (FED) may only increase its interest rate by 50 basis points. If the data is equal to or better than projections, the Fed could be more aggressive and raise rates by 75 points, but with the risk of other countries raising their rates and becoming more competitive in world markets. All this comes a week into the US midterm elections where both Republicans and Democrats are accusing each other of how to curb inflation without slowing the economy. go to the bar

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