The United States is already in recession

Many economies are moving inexorably towards recession. For the moment, it has already reached the United States, which has now posted two quarters of negative growth. And it is expected to reach the Eurozone and other developed countries in the coming months.

 

Many of the world’s main economies will enter recession in the coming months, if they have not already done so, as is the case with the United States, which has seen two quarters of contraction in its Gross Domestic Product (GDP). Among those affected would be the Eurozone, Canada, the United Kingdom, Japan, South Korea and Australia, according to a report by financial services provider Nomura, reported by CNBC.

The situation in these economies is aggravated month by month by the aggressive monetary policies of central banks, which try to control inflation with sharp interest rate hikes. As a result, the economy tends to slow down, as financing for businesses and households becomes more expensive. Buying a house, a car or any other good in instalments is becoming increasingly expensive.

 

The United States is already in recession 

The US economy has now experienced two consecutive quarters of declines in GDP and is technically already in recession. In the first quarter of the year it contracted by 0.4 % and in the second quarter by 0.1 %.

It should be borne in mind that the US Federal Reserve (Fed) raised the official interest rate by 0.75 points in both June and July, and does not rule out another “unusually high” increase in September depending on how inflation evolves. In June the year-on-year CPI stood at 9.1 %, the highest rate in more than 40 years, and in July it fell back to 8.5 %.

In this inflationary context, many analysts believe that the recession could be extended until 2024 because of the need to continue raising interest rates, as Paul Volcker did in the early 1980s at the cost of unemployment levels that reached over 10 %. In this regard, Bank of America forecasts that unemployment will rise from 3.6 % to 4.6 %.

US weakness is expected to spill over to Canada, which is also expected to enter recession in the first half of 2023.

 

Europe, following in the footsteps of the US

US developments are very important for Europe because of the pulling power of the world’s leading economy. As Bloomberg indicates, Goldman Sachs estimates that the Eurozone will enter recession at the end of the year, after a GDP contraction of 0.1 % in the third quarter and 0.2 % in the fourth quarter. 

In this regard, the composite purchasing managers’ index, which measures manufacturing activity, fell in August from 49.9 to 49.2 points, its lowest level in 18 months. Germany suffered its sharpest decline in two years and activity in France fell for the first time in a year and a half. Falling demand means that the manufacturing sector continues to accumulate unsold finished goods.

In the Eurozone, stagflation could occur, with GDP falling by up to 4 % and inflation in the double digits, peaking in October of this year, according to Moody’s. 

Germany and Italy could be particularly hard hit by the economic slowdown. In the case of the Italians, political instability will have a negative influence, while for the Germans, the evolution of the flow of Russian gas will be fundamental, as a large part of German industry depends on it.

Brexit will not save the UK from recession. The Bank of England estimates that UK GDP will start to contract in the last quarter of the year and will continue to fall until the fourth quarter of 2023. Further interest rate rises are on the way and inflation could rise to over 13% by October this year.

 

Uncertainty in Catalonia

Fortunately, the Catalan economy is among the least affected in the Eurozone. For the moment, GDP continues to grow, with an increase of 1.5 % in the second quarter of the year, although we cannot ignore the fall in activity in the industrial sector, which has been hard hit by the rising cost of raw materials and energy. Nor should we forget the destruction of employment in July and August. These are data that do not invite optimism.

On the other hand, the Bank of Spain has already noted the tightening of financing conditions for households and companies. The banking regulator warns in a report of “a contraction in the supply of credit to SMEs in the coming months”, while “requests for loans for house purchase have continued to grow” despite the increase in interest rates.

 

Lights and shadows of the Chinese giant

Its situation is not idyllic, but China remains far from recession for the time being, although its GDP contracted by 2.6 % in the second quarter of the year because of the closures. It should be noted that in March and April total or partial closures were imposed in the country’s main centres. 

On the other hand, against the general trend, the Central Bank of China decided to lower its interest rates by surprise in order to bring some oxygen to the economy. In year-on-year terms, China’s economy grew by a pyrrhic 0.4 % in the second quarter, well below the 1 % estimated by experts.

 

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  1. Jordi MorenoJordi Moreno says:
    Jordi

    Gràcies per l’article

  2. Manuel Bullich BuenoManuel Bullich Bueno says:
    Manel

    Molt bon article!!!

    • Jordi CollJordi Coll says:
      Jordi

      Celebrem que t’hagi agradat, Manel. Moltes gràcies pel teu comentari!!!

      4 weeks ago

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