Charting the Global Economy: The risk of a euro-area recession is growing

Longer-term inflation expectations in the United States have cooled and rising prices have been largely responsible for a healthy gain in the value of retail sales, prompting investors to reverse bets that the Federal Reserve will raise interest rates later this month by an unprecedented full percentage point.

The odds of such a rate hike rose earlier this week after consumer prices rose 9.1% in the year to June, a new four-decade high. Canada’s central bankers have opted for such a move, while South Korean officials have also strengthened their resolve to rein in relentless price pressures.

Calls for recession are growing in Europe amid record inflation and weakening investor confidence, although the planned reopening of a key Russian gas pipeline next week may alleviate looming worries somewhat.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

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US inflation hit a new four-decade high again last month, likely bolstering the Fed’s resolve to aggressively raise interest rates, which could upend the economic expansion.

Consumers’ long-term inflation expectations fell more than expected in early July, while a recent drop in gasoline prices helped boost confidence. Combined with strong retail sales data that reflected high prices rather than increased spending, the outlook for a full one percentage point hike by the Fed this month has faded.

Europe

The scheduled reopening of a key Russian gas pipeline next week could be bigger for the euro than the first interest rate hike in a decade by the European Central Bank. Both are scheduled for July 21. Although the ECB’s plans to start raising tariffs have been well signaled and therefore priced in by the markets, it is more doubtful that Russia will actually restore gas flows to Europe once the North Gas Pipeline maintenance is completed. Stream 1 completed.

The risk of a eurozone recession is rising as the likelihood of natural gas shortages rises and inflation remains at record highs, according to economists polled by Bloomberg. The probability of an economic contraction has risen to 45%, from 30% in the previous survey and 20% before Russia’s invasion of Ukraine.

Investor confidence in the German economy has fallen to the lowest since 2011 as the country faces the growing prospect of a recession and the risks increase that it will be cut off from Russian energy supplies.

Asia

China’s economy has grown at the slowest pace since the country was first hit by the coronavirus outbreak two years ago, underscoring the impact of the pandemic and Beijing’s strict approach to control it over growth.

China’s credit jumped much more than expected last month to hit an all-time high in June on a strong rebound in bank lending and record sales of government bonds. The data indicates that central bank and government stimulus measures are beginning to have an effect in stimulating the supply of credit to the economy.

Emerging Markets

Russia’s current account surplus hit a record $70.1 billion in the second quarter of the year as rising energy and commodity export revenues helped offset the impact of sanctions American and European imposed during the invasion of Ukraine by President Vladimir Putin.

Bolivia says it is on track to finally join the ranks of commercial lithium producers next year. That would be a big deal considering it has the world’s largest resources of battery metal at a time of tight supply. While neighbors Chile and Argentina are enjoying an eightfold increase in lithium prices, fueled by the explosion in demand for electric vehicles, Bolivia is struggling to market the powdery white metal trapped under its giant salt pans.

World

Central banks around the world are accelerating interest rate hikes, seeking to crush a surge in inflation partly on their own initiative. On Wednesday, Canada’s central bank rose a full percentage point more than expected after two half-point moves, South Korea rose half a point after several quarter-point moves and New Zealand rose by half a point for a third consecutive meeting.

The underlying dynamics of oil supply and demand point to an extended period of rising prices, which will last for months, if not years. The impact on global economics and politics is profound.

A global tax deal billed as a “revolution” for the profits of multinational technology companies has run into a thicket of technical difficulties that will delay its implementation until 2024 at the earliest.

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