Euroze economy is set to shrink.

The eurozone economy is set to shrink next year as high inflation, and potential energy shortages drag down output and trigger a reversal in the fortunes of the labour market, according to a Financial Times poll of economists. Almost 90 per cent of the 37 economists surveyed said they thought the region was already in recession, and most forecast gross domestic product would contract over the next year. «Gas markets in Europe remain a key risk,» said Chiara Zangarelli, an economist at Morgan Stanley. Most economists thought Europe was past the worst of its energy crisis, sparked by Russia’s invasion of Ukraine.

«The tail risk of gas rationing has likely been avoided this winter, but the energy supply for the next winter is still open,» said Sylvain Broyer, chief economist for Europe, Middle East and Africa at S&P Global Ratings. European countries have managed to lower their dependence on Russian gas imports by turning to Norway, the US and the Middle East and switching to alternative energy sources. But economists warn that, without Russian supplies, it will be much harder to refill Europe’s crucial gas storage facilities ahead of next winter. «There is still the risk of an energy supply crisis this winter. »

The downturn, combined with much higher mortgage costs across Europe, was also expected to trigger a sharp reversal in the region’s housing market. However, the economists added that Eurozone inflation would likely stay above the ECB’s 2 per cent target for at least two more years. On average, those polled expect prices to rise by just over 6 per cent next year and almost 2.7 per cent in 2024. Earlier this month, the ECB predicted price growth would average 6.3 per cent next year and 3.4 per cent in 2024.

The poll found that wage growth is expected to be 4.4 per cent next year, below the 5.2 per cent the ECB forecast. Unemployment was predicted to rise from a record eurozone low of 6.5 per cent in October to 7.1 per cent late next year.

www.sba.tax

Comments

Cloud Bookkeeping

HS2 cost cuts new routes and add delays.

Transport department officials have begun work on «Project Silverlight» suggesting the highspeed rail scheme might face four additional years of delay. The planned High Speed 2 rail line faces further delays of up to four years and more cuts to the project under plans being drawn up by ministers to rein in its ballooning costs. The extra delays to the country’s biggest infrastructure project would mean that it would not be completed until as late as 2045 — 12 years after originally planned. «This is a function of inflation; we are having to find huge savings because the cost of everything the department is already doing will have become so much more expensive by then,» said one government official. In October, the FT reported that the Treasury had asked HS2’s management team to identify potential cuts or «scope reductions» to the high-speed line. Transport department officials have subsequently begun work on Project Silverlight aimed at fi...

Doubt on CS's collateral.

Credit Suisse provided an emergency $140mn loan to Greensill Capital based partly on invoices to companies that deny ever doing the business stated on the documents. The Swiss bank provided the loan in October 2020, less than five months before the collapse of Greensill, a supply chain finance firm that counted former British prime minister David Cameron as a senior adviser. Invoices issued by metals magnate Sanjeev Gupta’s Liberty Commodities and sold to Greensill formed part of the collateral for the loan, according to documents seen by the Financial Times and people familiar with the transaction. Yet several of the parties named on the invoices have told the FT they did no business with Liberty. GFG has consistently denied any wrongdoing. Credit Suisse’s loan had a clause dictating that the collateral value had to be equal to or greater than the $140mn borrowed. The terms of the debt agreement only allowed invoices on Green-sill’s balance sheet to count towards this tally if t...

Tax cut

Sterling tumbled against the dollar to below $1 . 09 , hitting its lowest point since 1985 , after UK chancellor Kwasi Kwarteng unveiled a £45bn debt-financed tax-cutting package that sparked a historic increase in borrowing costs . Kwarteng’s political and economic gamble includes the biggest set of tax cuts for 50 years , with the end of the 45p additional rate for the highest earners as well as a sharp reduction in levies on dividends . But concern over the amount of debt required to finance the tax cuts triggered a frenetic day of trading that raised doubts on whether Britain’s new economic approach was sustainable . «Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time» . Kwarteng has staked the political fortunes of the Conservative party on the bet that the radical tax cuts and deregulation will raise Britain’s sluggish growth rate to 2 . 5 per cent . «This is a new appr...

Search This Blog