Global financial crash warning: ‘Global recession is approaching’ as euro zone is about to be crushed | City & Business | Finance

Governments around the world have faced successive crises that have put immense pressure on their economies, as inflation soars and the crisis in the cost of living threatens consumer spending. While many – including the eurozone and the UK – have stepped in to prevent a full-scale recession during the pandemic, that aid is being withdrawn just as the effects of Ukraine’s invasion are starting to set in. feel.

Today, analysts suggest that many key economic markers are returning to where they were during the financial crash of 2008.

Robin Brooks, chief economist at the Institute of International Finance and former strategist at Goldman Sachs, noted that the Purchasing Managers’ Index (PMI) of two of Europe’s largest economies, Germany and Italy, is already beginning to show signs of recession.

The index – which shows market conditions rising positively or contracting negatively – has not fallen to 2008 levels for either economy, but has fallen below 50 since the start of the year.

Anything above 50 on the zero to one hundred scale represents an expansion in output, while anything below marks a contraction, suggesting that the two economic powerhouses are already contracting in terms of manufacturing output.

READ MORE: Collapse of the euro zone! Warning “The greatest financial crisis in its history”

However, the measure of new orders minus inventories – which reflects manufacturing activity through expected demand and supply – has already fallen to -10% for Italy and even lower for Germany.

As such, it appears their manufacturing supply is currently outstripping demand – a likely effect of rising inflation as consumers seek to spend less.

Mr Brooks said this downward trend was “already as bad as the 2008 crisis, and this data does not yet reflect the current spike in energy prices” which is expected to put immense pressure on consumers and industry.

Germany in particular could fare worse: a large part of its economy remains heavy manufacturing which tends to consume a lot of natural gas, and which would generally be supplied from Russia.

Some of this can be attributed to the need to look elsewhere for energy supplies, but the downward trend even before the start of the war suggests that the decline in productivity was only exacerbated by the invasion. from Ukraine.

Mr Brooks explained: “German manufacturing has lost access to cheap Russian energy and therefore its competitive edge, even as peripheral debt makes ECB tightening impossible.”

Another sign of the impending recession is that German government bonds are registering their biggest swings since the Eurozone crisis a decade ago.

According to a Financial Times analysis of Refinitiv data today (Tuesday), the yield on German 10-year bonds has oscillated 0.1% in 79 days, which has not happened regularly since the crisis of the debt.

Antoine Bouvet, senior rate strategist at ING Bank, told the newspaper: “Market conditions are deteriorating in the bond markets. Everyone has the same point of view, so no one is ready to take the other side.

Volatility in the German bond market is a sign of deteriorating trading conditions, with many traders holding their breath in the face of possible further interest rate hikes by the European Central Bank.

But the market also now lacks the federal bank’s backstop guaranteeing bond buying for constituent governments, as it abandons its asset and bond purchase programs put in place during the pandemic to allow the loan.

Italian bonds would also fluctuate significantly, and the spread between them and German 10-year bonds reached nearly 2.3% on Monday.

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