LONDON (Archyde.com) – European shares fell on Wednesday, following concerns regarding a global recession outweighed recent optimism regarding the lifting of lockdown restrictions in China. The pan-European Stoxx 600 index fell 0.7 percent by 0708 GMT, ending a three-day rally following a rough trading session on Wall Street overnight, on the back of bleak consumer confidence data in the United States. Germany’s DAX index led the decline among other indicators in the region, falling by 0.9 percent ahead of the preliminary reading of German inflation expected at 1200 GMT. H&M shares rose 0.7% following the world’s second-largest fashion chain reported a more-than-expected 33% growth in quarterly profit.
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International Economy
The European Central Bank ends bond buying and decides to raise interest rates
written by Alexandra Hartman Editor-in-Chief
The European Central Bank announces the end of its monetary support to the economy following years of buying bonds and decides to raise interest rates.
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The European Central Bank ends bond buying and decides to raise interest rates
In the face of record inflation, the European Central Bank announced today, Thursday, that it is ending its monetary support for the economy following years of buying bonds, and confirmed its intention to raise key interest rates in July for the first time in more than a decade.
The central bank intends to “raise key interest rates by 25 basis points” at its next meeting on July 21, before “another hike in September.”
Foundation President Christine Lagarde said the bank would approve a “series” of interest rate increases “over the next few months depending on medium-term inflation expectations”. The European Central Bank last raised interest rates in May 2011.
Since December, the Bank has been surprised by inflation, which accelerated further with the war in Ukraine, and averaged 8.1 percent over the course of a year in May, while 14 out of 19 eurozone countries registered a higher level than this rate.
The current inflation rate is unprecedented since the introduction of the single currency and is four times higher than the European Central Bank’s 2 percent target.
Lagarde stressed that “inflation is not desirable” and the European Central Bank “will ensure that it returns to the target.” But the hoped-for price drop will take time, as the European Central Bank sharply raised its inflation forecast to 2024.
In a related context, the institution noted the start of a rise in wages once morest the background of “strong demand for manpower”, but it does not see any risks of this leading to a “vicious circle” that would further increase prices.
The bank pointed to the possibility of raising interest rates by more than 25 points in September “if inflation expectations in the medium term remain unchanged or deteriorate.”
Central banks aim to raise key interest rates to control inflation and demand pressure.
But the effect of this measure will not be immediate and will appear “in the long term”, as Christine Lagarde warned, while her institution is accused of slowing down in the face of rising prices.
The European Central Bank wants to follow a very gradual monetary tightening schedule.
Accordingly, the institution confirmed that it would first finish “on July 1” the purchase of assets, which is a prerequisite before starting to raise interest rates. This program enabled the European Central Bank to buy bonds in the market with the aim of lowering financing costs and reviving the economy.
The bank has bought regarding five thousand billion euros in bonds since 2015, but this support mechanism has been overtaken by events in the face of accelerating inflation.
The World Bank confirms: The UAE economy continues its growth momentum, away from the path of the global slowdown
written by Alexandra Hartman Editor-in-Chief
Mustafa Abdel Azim (Dubai)
The World Bank confirmed the ability of the UAE economy to continue its growth momentum, away from the slowdown in the global economy, which prompted the Bank to reduce its forecast for global growth this year to 2.9%, compared to its forecast in January, estimated at 4.1%.
In its World Economic Prospects report issued yesterday, the World Bank established its previous forecast for the growth of the UAE economy this year at 4.7%, with the UAE benefiting from high oil prices in the near term, pointing to reforms related to deepening capital markets, increasing labor market flexibility and accelerating the pace of Technological innovation will support growth in the medium term, with growth expected in 2023 and 2024 to reach 3.4% and 3.6%, respectively.
The Middle East
As for the Middle East, the report indicated that the average growth rate in the region, which reached 5.3% in 2022, which represents the fastest pace in ten years, hides a large disparity and a trend in the wrong path, as the growth rate will suddenly slow down in 2023 and 2024 in various countries of the region.
In its report, the Bank attributed the current recovery mainly to the strong growth in the oil-exporting countries, driven by the rise in oil revenues and a general decline in the negative effects of the pandemic in the countries that achieved high vaccination rates.
The Bank expected that the economies of the Gulf Cooperation Council countries will achieve a growth of 5.9% in 2022, which is an increase of 1.2 percentage points than was expected at the beginning of the year. It is likely that the strong growth in oil production in Saudi Arabia will lead to a strong recovery in the non-oil sector to push the rate Growth in 2022 will reach 7%, its highest level in ten years, before declining to 3.8% in 2023.
war in ukraine
The World Bank said in its report: The war in Ukraine, along with the damage caused by the Corona Virus (Covid-19) pandemic, has exacerbated the slowdown in the pace of the global economy, which is entering into what might become a prolonged period of weak growth and high inflation, and this In turn, it increases the risks of stagflation, with potentially damaging consequences for middle and low-income economies alike.
In its report, the World Bank expected global growth to decline from 5.7% in 2021 to 2.9% in 2022, which is much lower than the 4.1% expected in January. It is also expected that global growth will continue to swing around that pace during the period from 2023 to 2024, at a time when the war in Ukraine disrupts economic activity, investment and trade in the short term, and weakens pent-up demand, as well as ending the accommodative fiscal and monetary policies.
As a result of the damage caused by the pandemic and war, the level of per capita income in developing economies this year will remain regarding 5% lower than its trends that prevailed before the outbreak of the pandemic.
stagflationary risks
“The war in Ukraine, the lockdowns in China, the disruptions in supply chains, and the risks of stagflation are taking huge blows to global growth, so it will be difficult for many countries to avoid recession risks,” World Bank President David Malpassanya said. It is necessary to encourage production and avoid the imposition of trade restrictions, and there is a need to make changes in fiscal, monetary, climate and debt policy, in order to counteract capital misallocation and inequality.”
According to the report, global inflation is expected to decline next year, but will likely remain above inflation targets in many economies, and the report indicates that if inflation remains high, repeating decisions of the previous stagflation period might translate into a sharp decline in global economic activity. Along with financial crises in some emerging market and developing economies.
Oil prices are falling as fears ease that the European Union will impose an embargo on Russian oil.
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Oil prices drop below $114 a barrel
Oil prices fell below $114 a barrel, today, Tuesday, to give up part of the gains that… reached 7% Yesterday, with European Union member states divided over a possible Russian oil embargo, persistent risks of supply shortages limited prices.
The bloc’s foreign ministers were divided over whether to join the United States in imposing sanctions on Russian oil, with some countries, including Germany, saying the bloc is too dependent on Russian fossil fuels to afford such a step.
Brent crude fell $1.92, or 1.7%, to $113.70 a barrel. West Texas Intermediate crude fell $2.82, or 2.5 percent, to $109.3.
Oil prices also fell with the rise of the US dollar, following Statements by the Federal Reserve Chairman Jerome Powell, on Monday, indicated the possibility of a sharper tightening of monetary policy than expected.
A strong dollar increases the cost of crude to holders of other currencies and weakens risk appetite.
Earlier this month, Brent crude recorded $139 a barrel, the highest price since 2008.
And Saudi Arabia said, on Monday, that it will not be responsible for any shortage in global supply following the recent military operation carried out by the Yemeni armed forces.
The latest data on US crude oil inventories will be the focus of attention, later today. Analysts do not expect any change in crude oil prices.