Will the “Third World” economic crisis in Europe lead to a global recession?

Europe wants to blame Russia for all its problems. But anyone who has spent a few years in the markets and watched world affairs knows that the only source of Europe’s problems are its post-fossil radical economic policies. Russia is just the scapegoat. Will the world suffer the consequences of this political orientation? a direction that the whole of the EU has long said it is heading?

There are three things to consider here.

First, China is also slowing down. Thanks to its zero Covid policy, which put part of the city of Chengdu under quarantine last week, China is also having an impact on supply chains. And while there don’t seem to be any companies laying off because of it – as was the case last year when auto companies like GM temporarily laid off workers because it couldn’t get semi- core drivers from Asia. No one can call China’s slowdown a recession, because China is the biggest consumer of commodities, on which emerging markets and even the United States depend for their exports.

Another thing to consider is that in 2008 oil was over $180 a barrel. That summer, Goldman Sachs forecast oil at $200. Gas was easily $4 a gallon in California, if not $5.

Yet Europe has not suffered from any of the problems it currently suffers from. Nobody in the power structure of the European Commission, of the European Union, in Germany, in France, not a soul, was calling for energy rationing and asking farmers to reduce fertilizers, because fertilizers come from also oil and – from Russia. No one has done it even with imported Russian fuel at historic highs. No ruler spoke of living frugally in a mansion surrounded by panels of gold leaf. Nobody blamed the high diesel prices on Russia.

So it’s all driven by politics. Russia is not the only country in the world with oil and gas, although European Commissioner Ursula von der Leyen seems to think so.

Markets have driven prices up because speculators do what speculators do – bet on markets, bet on politics. They saw Europe flip-flopping on Russian oil and gas supplies, so they raised the price expecting shifting allegiances and new price negotiations from the Saudis and the Emirates .

The crisis in Europe is a political mistake. It is designed to force-feed Europeans into a post-fossil fuel economy and into a new industrial revolution, which – it seems – they will be less likely to participate in as energy prices in Asia and America Latin are far from there. they are in Europe.

It is out of the question that no one among the European leaders thinks that by seizing more than 250 billion dollars of money from the Central Bank of Russia, the Russians would only retail by banning imports of Nordic cod . Seriously, people? Russia therefore has no interest in shipping natural gas to Europe. Europe can get it elsewhere.

Like China.

Despite rising energy prices elsewhere too, nothing compares to the euro.

In August, Brazil’s hydroelectric dams electricity for $36 per megawatt hour. Germany? It will be 315 euros per megawatt hour, excellent.

If Europe enters a recession, and it will, it will buy fewer raw materials from Brazil, Argentina and the United States, its main suppliers. There is a chance that Europe will still be forced to import more food anyway because of, again, its ridiculous food and energy policies, but that is unknown. Will a weaker economy mean weaker demand, especially if inflation is high and European companies go bankrupt or downsize?

High-paying engineering jobs are already cut in European tech companies.

Early last month, the German wind turbine manufacturer Siemens Gamesa said it aims to cut 1,500 jobs.

European equities are underperforming the US and most major emerging markets except China. The European Central Bank shows no sign of appeasement. With inflation above 9%, the ECB is unlikely to release the brakes.

Economic growth forecasts

It is worth remembering that natural gas prices have increased by 700%. There’s no reason they can’t drop 500%. All the talk of a harsh, cold winter in Europe may just be media drama. Anti-nuclear Germany already says it will keep two nuclear reactors operational after pressure from anti-nuclear activists to close them following the Fukushima power plant disaster in Japan more than a decade ago.

If electricity prices continue to rise, then Germany will soon be in recession. They better throw money into oil, gas and nuclear to signal to the market that Europe is not giving up on fossil fuels. They went from Covid relief packages to inflation relief packages.

“The third bailout package does little to change the fact that Germany is likely to slide into recession in the fall,” Commerzbank chief economist Joerg Kraemer said on Monday, quoted by Reuters.

ING’s chief economist, Carsten Brzeski, told Reuters the same: “The package is unlikely to succeed in preventing the wider economy from falling into recession.”

The third-worldization of Europe pushes it below the real nations of the “third world”. India will overtake Germany’s GDP at this rate, some predicted.

European economies are alive thanks to the recovery. This worsens inflation. They conserve electricity in parts of Europe now. They don’t do that in India and Brazil.

That’s fine, though. Dutch leader Mark Rutte is ready for Third World Europe.

“You can’t help everyone so…we in the West will be a little poorer because of high inflation and high energy costs,” Rutte was the first to say when prices started to rise in May.

The International Monetary Fund has lowered growth forecasts for 2023 for Germany, France, Italy and Spain, citing uncertainties related to the Russian-Ukrainian war and rising interest rates for curb high inflation.

United Kingdom, inflation is above 10% for the first time in 40 years. The Bank of England expects inflation to peak above 13% in the fall, but that’s okay because they’re so wealthy in the UK they’re increasing electricity rates by 80%.

They don’t do that in Vietnam.

Europe is a political mistake mixed with one mega-greed on top of the other.

Last week, the Economist Intelligence Unit (EIU) lowered its growth forecast for the global economy. All European economies have been downgraded, but for some reason they are still positive for 2022.

Next year is looking better for almost everyone. Except for most of Europe. Here’s how the EIU sees 2023 GDP.

  • China: 5.3%
  • India: 5.1%
  • South Africa: 2.4%
  • United States: 1.2%
  • France: 0.3%
  • Brazil: 0.3%
  • EU27: 0.3%
  • United Kingdom: -0.6%
  • Germany: -1%
  • Netherlands: -0.9%
  • Italy: -1.3%
  • Russia: -3.4%

The point to remember: these figures will be revised downwards unless Europe gets its act together on its energy and food policy.

Once the market senses it, oil and gas prices will come back down and stop rising due to the uncertainty. It will then be a question of curbing inflation, which depends on European recovery.

Inflation fears are a tailwind. The ECB will drop its inflation-fighting mandate or cut it in half by slowing the economy. Such will be the showdown on the markets for the rest of the year.

The big surprise will be a Fed pause – albeit with last week’s strong job numbers, a pause in rate hikes is unlikely this year.

Until American policymakers follow European food and energy policies, the United States should come out on top and remain the best in Western markets.

Instead of a strong, stable and growing economy with a future, Europe looks like a region in decline. High electricity means manufacturers have an incentive to manufacture overseas. Higher electricity means small businesses can’t afford to keep their lights on.

How long will the Europeans accept this?

Mary I. Bruner