On a glide path for the next three quarters, starting with the current one, will be found German economy, according to a Reuters poll of 34 leading economists. The reason is the dramatic rise in natural gas prices and the reduction of flows from Russia.
Europe’s leading economy is extremely vulnerable to Russian flow disruptions and rising costs, as heavy German industry is highly dependent on Russian natural gas. Thus, a recent Reuters poll concluded that the German economy will experience three consecutive quarters of negative growth, thus surpassing the technical recession terminology of only two negative quarters.
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Economists forecast a decline in growth rates to -0.1% and -0.3% in the third and fourth quarters of this year, respectively, followed by a third quarter of negative growth of 0.2% in the first quarter of next year.
The new forecasts represent a significant revision of forecasts at hand, given that in a similar survey last July, forecasts spoke of low but positive growth rates of 0.2%, 0.3% and 0.4% for respective upcoming quarters.
“Natural gas prices are moving from one astronomical high to another, which will lead to unprecedentedly high energy bills this winter,” ING’s Carsten Brzeski commented in a note. “Even without a complete shutdown of Russian gas, high energy and food prices will weigh heavily on consumers and industry, making a technical recession inevitable – at the very least.”
The estimates for the ECB
With inflation running at a fifty-year high of 8.8% in August and energy costs soaring, the ECB is now feeling increased pressure to react more forcefully, as early as its next meeting next week.
In the Reuters poll, economists are split on whether he will eventually limit himself to a 50 basis point rate hike or dare a larger hike of 75 basis points at the 8her September. However, the tide is now clearly tipping in the direction of a very large increase.