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Europe’s Economy Slows to a Crawl as War and Inflation Take a Toll – The New York Times



Rising prices, fallout from the war in Ukraine and continuing supply chain chokeholds slowed growth around the world in the first months of the year and hobbled efforts by major economies to recover from the pandemic.

The latest evidence came on Friday, when the European Union said that the 19 countries that use the euro grew only 0.2 percent overall during January, February and March compared with the previous three months.

That figures came just one day after the United States announced that its economy shrank 0.4 percent over the same period. Earlier this month, China, the world’s second largest economy behind the United States, reported signs of significant weakness as another wave of Covid-19 prompted widespread lockdowns.

“The overarching message is that the global growth outlook is souring and it is deteriorating at a faster rate and in a more serious way than most analysts have anticipated,” said Neil Shearing, chief group economist at Capital Economics.

There is significant variation in the causes, as well as the forecasts, among the three major economic blocs.

Although total output in the United States contracted, analysts tended to be more sanguine about the American economy’s prospects, noting that consumer spending was strong despite high inflation and that the labor market remained tight. The downturn during the first quarter was most likely the result of one-time measuring quirks.

By contrast, China’s report of 4.8 growth percent in the first quarter masks just how much that economy is suffering from a slump in the real estate industry, overinvestment and pandemic-related shutdowns.

As for Europe, it is much more affected by the war in Ukraine.

James Hill for The New York Times

The common problem they all face, though, is inflation.

“Growth around the world is evolving at different speeds,” said Gregory Daco, chief economist of EY-Parthenon, but “inflation is present almost everywhere in most sectors.”

Those divergent economic backdrops may cause governments and central banks to choose different, or even conflicting, policies as countries try to slow inflation without tipping into recession.

In the United States, the Federal Reserve is set on raising interest rates to bring down inflation, Mr. Daco said, while governments in Europe may end up funneling more money to their citizens to blunt the impact of rising energy prices. And China, he said, is caught in a bind: “They do not want to let go of their Covid-zero policy, but they realize the drag on economic activity from that policy is massive.”

Even though the current slate of risk factors — like the coronavirus and tensions between Russia and Ukraine — were all present when the year began, the economic outlook then was much brighter. Restrictions related to the Omicron variant of the coronavirus were beginning to ease in Europe and elsewhere, and there were hopes that the movement of goods and supplies around the world were about to pick up.

But Russia’s invasion of Ukraine injected a jarring level of uncertainty and undermined economic confidence. The war and resulting sanctions imposed by the United States, Europe and their allies have aggravated shortages of food, energy and crucially important minerals, disrupting trade and driving inflation to wince-inducing levels.

China’s economy expanded in the first quarter but at a pace that was barely faster than the final three months of last year, underlining more trouble ahead. The government has responded to renewed outbreaks of Covid with severe lockdowns and mass quarantines, which have kept millions of workers and consumers in several cities at home. Shanghai, the country’s biggest city, has been closed for more than a month, while further shutdowns of businesses and residential complexes were announced in Beijing on Friday.

Agence France-Presse — Getty Images

Patrick P. Gelsinger, the chief executive of Intel, the Silicon Valley giant, cited the Shanghai lockdown and the war in Ukraine in warning on Friday that the shortage of computer chips that has bedeviled technology, automotive and electronics companies worldwide for more than a year would continue “until at least 2024.” He made his remarks on a call with industry analysts.

Risks, especially those related to a possible energy embargo and other disruptions caused by Russia’s invasion of Ukraine, have intensified. This week, Russia cut off gas supplies to Poland and Bulgaria. At the same time, the European Union has been inching closer to an agreement to stop the flow of Russian oil.

The impact of an abrupt halt in gas and oil supplies has generated sharp debate. In Germany, which has the largest economy in Europe, the central bank recently warned that a gas embargo would cause the country’s economic output to decline as much as 5 percent this year.

Some economists have offered more optimistic estimates, but Melanie Debono, senior Europe economist for Pantheon Macroeconomics, said a gas embargo would almost certainly throw Germany into recession and would probably “drag the rest of Europe down with it.”

During the first three months of this year, Germany’s gross domestic product — the broadest measure of economic output — grew 0.2 percent.

“The economic consequences of the war in Ukraine have had a growing impact on the short-term economic development since late February,” the Federal Statistics Office in Germany said on Friday.

Lena Mucha for The New York Times

Across the eurozone, growth varied. The economy in Spain performed slightly better than other European countries’, growing 0.3 percent over the same period. Still, the improvement was much smaller than the 2.2 percent recorded in the last quarter of 2021.

In France, where Covid restrictions remained in place for much of the first quarter, growth came to a dead stop. In Italy, G.D.P fell 0.2 percent from the previous three months.

“Clearly the picture for the first quarter is one of pretty weak growth,” said Ángel Talavera, head of European economics at Oxford Economics. “Consumer confidence has tanked everywhere pretty sharply,” he noted, adding that household spending weakened as wages failed to keep pace with inflation.

Average growth among the 27 countries that make up the European Union was 0.4 percent in the first three months of 2022, Eurostat, the European Union’s statistical office, stated, twice the figure reported for the eurozone.

Inflation has been a persistent thorn, rising to an annual rate of 7.5 percent across the eurozone in April from 7.4 percent in March, Eurostat said.

Food and other prices rose sharply. Although energy prices fell 3.7 percent this month, they are still more than a third higher than last year. “There is a squeeze in real incomes for households,” Ms. Debono of Pantheon said.

Rising inflation could test the American economy’s resilience as well. During the first quarter of this year, consumer prices rose at a 7 percent annual rate, the fastest in four decades. Taking inflation into account, after-tax incomes dropped for the fourth quarter in a row.

Roberto Salomone for The New York Times

Even before this latest round of measurements, intense uncertainty had dimmed forecasts. Last week, the International Monetary Fund revised its estimate of global growth to 3.6 percent from the 4.4 percent it predicted in January. Its estimate for the eurozone declined 1.1 percent to 2.9 percent for the year.

Russia’s invasion of Ukraine “will have severe economic consequences for Europe, having struck when the recovery from the pandemic was still incomplete,” the I.M.F. said in its most recent regional outlook. “The war has led to large increases in commodity prices and compounded supply-side disruptions, which will further fuel inflation and cut into households’ incomes and firms’ profits.”

The outlook for the rest of the year may darken further.

“Overall, 2022 is going to be a year where growth is going to be significantly weaker than most analysts expect,” said Mr. Shearing of Capital Economics.

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Here is Trump economy: Slower growth, higher prices and a bigger national debt



If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.



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China Stainless Steel Mogul Fights to Avoid a Second Collapse



Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.



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Why Trump’s re-election could hit Europe’s economy by at least €150 billion



A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.



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