Europe will spiral into a severe recession, as the shortage in energy supplies is set to spike inflation even higher and weigh heavily on Europe’s GDP, BlackRock said in a note on Monday.
Media reports said:
“The energy crunch will drive a recession in Europe, as we’ve argued since March. The crisis has worsened since then as Russia has halted gas supplies,” analysts warned, pointing to the indefinite cutoff of flows from Russia’s Nord Stream 1 pipeline.
Eurozone inflation reached 9.1% in August, causing the European Central Bank to issue its first-ever 75-point rate hike last week to control prices.
But that level of monetary tightening threatens to squash Europe’s economic activity, which is already under pressure from the energy crisis. Energy spending currently accounts for 11.7% of the EU’s GDP, compared to just 5.3% in the US.
“The European Central Bank is not acknowledging how it will crush activity further by trying to fight high inflation, in our view. We think the ECB will wake up to this sooner than markets expect – but not before it inevitably faces a severe recession,” BlackRock said.
Analysts expect it to remain hawkish through the end of the year and said the ECB’s downside scenario of a 0.9% contraction in the economy is looking more likely, which European stocks haven’t fully priced in yet.
Experts are also expecting the worst of the energy crisis to hit Europe this winter, as heating demand will put more pressure on the supply shortage and send prices even higher.
Although the EU has built up gas reserves to more than 80% of capacity, the 27-country bloc is still struggling to ration supplies ahead of winter, and some European nations have never relied on reserves alone through the winter without additional gas flows.
EU Aid Money Dries Up Due To Ukraine, Says Bill Gates
Another media report said:
Wealthy European countries, which have provided roughly half the funding for a 15-year-long UN development drive to tackle global issues, are running low on aid money due to the cost of the Ukrainian conflict, Bill Gates said.
“The Ukraine war is stretching their budgets with defense costs, refugee costs, electricity subsidies and shipping costs,” the billionaire philanthropist told the Financial Times in an interview published on Tuesday.
Gates spoke to the newspaper as the charity foundation that he and his former wife Melinda run released a report about the UN Sustainable Development Goals program and how it was on track to reach none of its objectives by the 2030 deadline.
The agenda was adopted in 2015 and set targets in 17 areas like tackling poverty, hunger, promoting education and equality and preserving natural resources. Half-way through, humanity’s ability to achieve them is challenged by unexpected crises like the Covid-19 pandemic and hostilities in Yemen and Ukraine, the newly released report said.
In the interview with FT, Gates said he believed that the Ukraine situation affected Europe’s willingness to sponsor the agenda more than the damage caused by Covid-19.
European nations pledged to send military and financial aid to Ukraine so that it could fight Russia. They also decided to decouple their economies from Russian supplies and market, triggering a surge of inflation and putting at risk its industries due to increased cost of production. Gates urged rich European nations to find money for things like fighting polio and malaria in poorer parts of the world despite the problems they face.
The Gates Foundation report mentions the Ukraine crisis as a major challenge mostly in the context of the role that both Ukraine and Russia played in supplying grains to the global food market.
Ukraine’s sea shipments were disrupted by the hostilities for months. Kiev claimed that Russia made maritime traffic through the Black Sea unsafe, while Moscow said Ukraine was to blame, since it deployed sea mines near its ports and wouldn’t allow vessels to leave
The situation was seemingly resolved by a Turkey-brokered agreement in late July, which established a mechanism of inspections and safe passage for ships going into and out of Ukraine. Moscow pointed out that in more than a month of resumed traffic, most of the shipments of Ukrainian grain were going to the EU rather than some vulnerable poorer nations.
Russia’s ability to export grain was undermined by the US-led sanctions campaign, which barred ships carrying Russian goods from using certain services. The UN, which co-signed the grain deal, pledged to use its influence to have those sanctions lifted, but according to Moscow, no progress has been made on the issue so far.
Zelensky Admits Ukraine Is Dependent On U.S.
Ukraine could face defeat in its military conflict with Russia without continued financial and military help from the U.S., its President Vladimir Zelensky has told CNN.
He was responding to a question about the affect internal American politics could have on his country, during an interview aired on Sunday, but recorded in Kiev at some point over the past week.
“I am grateful to President Biden and the White House and the bipartisan support,” Zelensky told CNN’s Fareed Zakaria. “Without this support, we will not be able to return our lands.”
“I want to believe that bipartisan support will remain strong and steadfast. For us, that is extremely important,” Zelensky added, addressing Zakaria’s claim that a Republican victory in the November midterms would result in the U.S. “supporting Ukraine less.”
If the West stops sending weapons and money to Kiev, “Russia could win this fight,” Zelensky opined. He added that he would be willing to make arguments in defense of the aid to U.S. taxpayers, who need to know their money is being used to defend Western “values.”
The U.S. has funneled more than $30 billion in military aid to Ukraine, of which $17 billion came between the 2014 coup and the escalation of hostilities in February. The most recent batch of ammunition and weapons, announced last week, was valued at $675 million.
In addition to weapons, ammunition and cash to fill Ukraine’s budget, the U.S. and the UK intelligence agencies are “working with the Ukrainians,” including the planning for last week’s offensive in Kharkov Region, according to Senator Mark Warner of Virginia.
“This kind of collaboration shows the strength of our combined military intel,” Warner, who chairs the Senate Intelligence Committee, told CNN on Sunday.