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Global economy fears the fall – EL PAÍS USA

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For two months it’s been impossible to get a table in the four Romain Fontell restaurants. The bustle has returned to Barcelona. After two stagnant years, cruise ships, big concerts and festivals have finally returned to the city, along with the throngs of tourists. Hotels are hanging no vacancy signs again and money pouring in at restaurants is filling cash registers. It’s the kickoff to a promising summer. “The numbers have already overtaken 2019 and the forecasts for the coming months are very good,” celebrates Fontell. His restaurants have survived the pandemic and he says they’ve learned to deal with inflation. But he doesn’t want to anticipate what might happen in the fall. “We’ve learned to live day by day,” he says. But by then, new threats will cloud the economic recovery again. Indeed, analysts are already seeing signs of recession.

Economic forecasting has become impossible, even in the short term. The backlash following of the global pandemic has been fading. A year ago, international organizations predicted a very strong growth in the eurozone, close to 4%. The European Central Bank (ECB) was the last institution to lower it, to 2.8%. In other times, any economist would think more than twice before uttering the word “recession”. That’s no longer the case. Headwinds are blowing towards Europe from all directions, especially from Russia. The prolongation of war in Ukraine and the adoption of new rounds of sanctions may sharpen the rise in prices and further damage growth in the eurozone. If Moscow decides to turn off the gas tap, Europe may even find itself facing a freezing winter.

Everything suggests that Europeans have decided to take a break during the summer. In Spain, with many still entitled to saving schemes and the improvement in the labor market —with more permanent contracts— means hotels and restaurants will be bustling. “We are seeing that consumers are willing to spend their savings, and leisure and tourism are included in this plan. Everything suggests it’s going to be a good season,” says Ángel Talavera, an analyst at Oxford Economics. From the command posts of the EU, summer in Spain, Italy or Greece is perceived as a balm to compensate for the setback that industry and construction in Germany might experience this quarter.

But among economists, expressions such as “black autumn” are beginning to spread. “Let’s cross our fingers,” is all that the Barcelona restaurateur, Fontell, can say. If nothing goes wrong, Europe —and Spain— will continue to grow. The influential German institute, Ifo, expects the European locomotive to grow by 2.5% this year and 3.7% the following. The director of Analysis, Timo Wollmershäuer, explains that the war in Ukraine, the energy crisis and the confinements in China have already forced forecasts for this year to be cut by 1.5 points compared to those made at the end of 2021. If all of this had hit the German economy in normal times, we would have fallen into recession”, he comments.

The forecasts of all the organizations, however, are full of asterisks and footnotes. Risks connected with the pandemic are dissipating, but new geopolitical threats are emerging. “In Europe, the story could be even bleaker than in the United States because of the prospect of a Russian energy boycott,” warns Adam Tooze, a historian and professor at Columbia University.

The ECB has outlined an alternative scenario to its central forecasts in which it contemplates a total closure of the tap by Vladimir Putin. The Kremlin has already blocked supplies to several EU partners, such as the Netherlands and Finland, and has reduced shipments to Germany, France, and Italy. Europe fears, however, that Moscow will go further, with cuts that imply rationing and with prices that continue to skyrocket.

This hypothesis, according to the ECB, already suggests a much weaker growth for 2022, of 1.3%, and a contraction of 1.7% in 2023. Inflation would also become more persistent and would stand at an average of 8% this year and 6.4% the following. Higher prices would eat into household income and consumption would be depressed. In other words, the much-feared stagflation. Despite its limited exposure to Russia, it would be unusual if Spain were not swept up in this dynamic.

The pandemic has shown how quickly any crisis, health or economic, spreads across the planet. And Europe’s main trading partners are beginning to show signs of exhaustion. This week, in the United States, an overheating economy has already seen two phenomena that have not gone unnoticed by economists. First: Wall Street entered an unmistakably bearish path after accumulating losses of more than 20% since its historical peak on January 4. Second: the interest curve was inverted; that is, the two-year bonds yielded more than the ten-year debt, indicating short-term pessimism. In both cases, analysts see signs that a recession is on its way.

More alarming than these two signs is the consensus of economists and businessmen who already speak openly of a recession in 2023. Though they maintain it’ll be short-lived, 70% of economists surveyed in a Financial Times survey hold this view. “Inflation is above target and the Federal Reserve must reduce it by raising interest rates and slowing down demand and the economy,” says Jonathan Wright, professor of economics at Johns Hopkins University, who coordinated the survey.

The central bank, chaired by Jerome Powell, wants its aggressive interest rate policy to cause, at most, a soft landing for an economy that quickly recovered from the pandemic and with a very strong labor market. However, Wright considers this unlikely. “Given the inflation situation, it’s clear that the Fed needs to tighten financial conditions quickly – and it will – even if the cost is to cause a recession,” he says.

Adam Tooze, who highlights this “dramatic change” in expectations, says he is primarily concerned about the US housing market. “Mortgage rates have increased from 3% to 6% in just six months. By 2023, a price drop is predicted. The US real estate sector is the largest single form of wealth in the world economy,” he adds. On top of this this is the collapse of the cryptocurrency market, which had already become popular as an investment.

There is also no good news from China, the EU’s other major trading partner and at the same time its “systemic rival”, in the words of Brussels. Beijing’s covid-zero policy, based on lockdowns in the face of new outbreaks, continues to prevent the end of bottlenecks and the great global traffic jam, adding to surging inflation. The investment bank Nomura expects growth for the Asian giant of 3.3%, a modest figure in relation to the frenetic pace of expansion of the Chinese economy in recent years. And that figure may decrease, according to the company, if the brick bubble that began with the Evergrande real estate crisis ends up bursting.

However, these aren’t all the dangers. The world is also awaiting the resolution that the ECB gives to the dilemma between growth and inflation. Southern countries accept that rates should be raised, but with great care so that the recovery is not derailed. Those in the north think that Frankfurt is too late. “The ECB has yet to admit that it will have to raise interest rates well into positive territory, above 3% and possibly much higher. This will slow down the economy. The war in Ukraine increases the chances of recession. It is frustrating to see that the ECB is still dragging its feet,” says Charles Wyplosz, a professor at the Graduate Institute in Geneva.

However, the south of the euro zone, led by Italy, held its breath after witnessing a rise in risk premiums just from announcing the first rise in interest rates. The biggest fear: the debt crisis of 2010, which was also the euro crisis. Athanasios Orphanides, now a professor at the Massachusetts Institute of Technology business school, was then governor of the Central Bank of Cyprus and a member of the governing council of the ECB. He believes that the problems that hit the euro zone back then have not yet been resolved. “As the ECB tightens policy, we may see a more significant tightening of monetary conditions in Italy and Spain, for example. That could lead to catastrophic results in those Member States, but the whole euro area is going to suffer,” he says.

If all those risks materialize, the big question is how intense the backlash will be. Lorenzo Codogno, a former Italian treasury secretary and professor at the London School of Economics, believes that the recession should be short-lived and limited to just a few countries. Also, let’s not forget that this time Europe has an instrument whose deployment has only just begun to support investment: a recovery fund of up to 800,000 million.

Edited by Xanthe Holloway

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Arabs believe economy is weak under democracy – BBC

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Illustration of men and women

Arabs are losing faith in democracy to deliver economic stability across the Middle East and North Africa, according to a major new survey.

Nearly 23,000 people were interviewed across nine countries and the Palestinian territories for BBC News Arabic by the Arab Barometer network.

Most agreed with the statement that an economy is weak under a democracy.

The findings come just over a decade after the so-called Arab Spring protests called for democratic change.

Less than two years after the protests, just one of those countries – Tunisia – remained a democracy, but a draft constitution published last week could push the country back towards authoritarianism, if approved.

Michael Robbins, director of Arab Barometer, a research network based at Princeton University which worked with universities and polling organisations in the Middle East and North Africa to conduct the survey between late 2021 and Spring 2022, says there has been a regional shift in views on democracy since the last survey in 2018/19.

“There’s a growing realisation that democracy is not a perfect form of government, and it won’t fix everything,” he says.

“What we see across the region is people going hungry, people need bread, people are frustrated with the systems that they have.”

Chart showing the proportion of people who believe that the economy is weak under a democracy. In all eight locations, there has been a rise since the previous survey in 2018-2019.

Across most of the surveyed countries, more than half of respondents, on average, agree with the statement that the economy is weak under a democratic system.

In every country surveyed, more than half also say they either agree or strongly agree that they are more concerned about the effectiveness of their government’s policies, than they are about the type of government.

Chart showing the proportion of people who agree with the statement: As long as a government can solve our country's economic problem, it does not matter what kind of government we have. In every location, at least 60% of respondents agree. Iraq is the highest, with 79% followed by Tunisia and Libya with 77%

According to the EIU Democracy Index, the Middle East and North Africa is the lowest ranked of all regions covered in the index – Israel is classed as a “flawed democracy”, Tunisia and Morocco are classed as “hybrid regimes”, and the rest of the region is classed as “authoritarian”.

In seven countries and the Palestinian territories, more than half of respondents to the Arab Barometer survey agree with the statement that their country needs a leader who can “bend the rules” if necessary to get things done. Only in Morocco do fewer than half agree with that statement. However there is also a sizeable proportion of people disagreeing with the statement in the Palestinian territories, Jordan, and Sudan.

In Tunisia, eight in 10 of those surveyed agree with the statement, with nine in 10 saying they supported President’s Saied’s decision to sack the government and suspend parliament in July 2021, which his opponents denounced as a coup but he said was necessary to overhaul a corrupt political system.

Chart showing split responses to the statement: This country needs a leader who can bend the rules to get things done. Iraq had the highest proportion who agree (87%) with only 13% who disagree. Followed by Tunisia and Lebanon. In Morocco and the Palestinian Territories, the responses were more evenly split.

Tunisia was the only country that managed to form a lasting democratic government following the 2011 Arab Spring uprisings. However, Tunisia appears to be slipping back into an authoritarian rule under President Saied. According to the EIU democracy index for 2021, the country fell 21 places in the rankings and has been reclassified as a “hybrid regime” rather than a “flawed democracy”.

The survey in Tunisia was conducted between October and November 2021. Since then there have been protests against the president, as he has tightened his grip on power by dissolving parliament, taking control of the electoral commission, and pressed ahead with holding a referendum on a new constitution which many say will boost his authority. The country’s economy has meanwhile sunk deeper into crisis.

“Now, unfortunately, for Tunisia, it’s reverting to authoritarianism, or what we call democratic backsliding, which is a trend across the world today,” says Amaney Jamal, co-founder of Arab Barometer and dean of the Princeton School of Public and International Affairs.

“I think one of the key drivers is not a commitment to authoritarianism or an authoritarian political culture, it’s really a belief now that democracy has failed economically in Tunisia.”

Chart showing how different challenges are perceived in each location. The economic situation is seen as the greatest challenge in eight of 10 locations, whereas Covid-19 is only seen as the second-largest in 3. Corruption and Instability rank lower in all locations apart from Libya.

The economic situation is seen as the most pressing challenge for seven countries and the Palestinian territories, ahead of corruption, instability, and the spread of Covid-19.

Only in two countries is the economic situation not seen as the most crucial issue – in Iraq, where it is corruption, and in war-torn Libya, where it is instability.

At least one in three people in every country surveyed agree with the statement that, over the past year, they ran out of food before they next had sufficient funds to buy more.

Chart showing how many people were unable to keep food on the table before getting enough money to buy more. The Palestinian Territories and Morocco had the lowest proportion, but still higher than one in three. Egypt had the highest proportion with more than two in three people (68%) saying this happened sometimes or often.

The struggle to keep food on the table was most acutely felt in Egypt and Mauritania, where around two in three people said this happened sometimes or often.

The survey was for the most part conducted before Russia’s invasion of Ukraine in February, which has further exacerbated food insecurity across the region – particularly for Egypt, Libya, and Tunisia – which heavily rely on Russian and Ukrainian wheat exports.

The survey’s respondents who reported being unable to buy more food when they ran out were less supportive of democracy in a number of the countries surveyed, especially in Sudan, Mauritania, and Morocco.

Chart comparing the proportion of respondents who believe the economy is currently good to those who believe it will improve in 2-3 years, by country. In Lebanon, a mere half a percent of all respondents would describe the economy is good, but they show more optimism for the future with 17% who believe the situation will improve. In Egypt, which has the most positive view of the present economy, 45% of respondents believe the situation is currently good and 50% believe it will improve. Tunisia has a dim view of the current economy (only 14% think it is good) but has the highest level of optimism for the future - some 61% of people agree.

The economic outlook is bleak across the region, with fewer than half of all respondents willing to describe the economic situation in their country as good.

Lebanon is ranked lowest out of all the countries in the survey, with less than 1% of Lebanese questioned saying that the current economic situation is good. The World Bank has described Lebanon’s economic crisis as one of the most severe in the world since the mid-19th Century.

Overall most people don’t expect the economic situation in their country will improve in the next few years. However there is some optimism. In six countries, over a third of surveyed citizens say the situation will be better or somewhat better in the coming two to three years.

Despite the economic turmoil currently gripping Tunisia, its respondents are the most hopeful about the future, with 61% saying things will be much better or somewhat better in a few years.

The future is “uncertain”, says Dr Robbins of Arab Barometer. Citizens in the region may be looking to alternative political systems, such as the Chinese model – an authoritarian one-party system – that he says has “brought a huge number of people out of poverty in the last 40 years”.

“That type of rapid economic development is what many people are looking for,” he says.

Additional data journalism by Erwan Rivault.

Methodology

The survey was carried out by the research network, Arab Barometer. The project interviewed 22,765 people face-to-face in nine countries and the Palestinian territories. The Arab Barometer is a research network based at Princeton University. They have been conducting surveys like this since 2006. The 45-minute, largely tablet-based interviews were conducted by researchers with participants in private spaces.

It is of Arab world opinion, so does not include Iran, Israel or Turkey, though it does include the Palestinian territories. Most countries in the region are included but several Gulf governments refused full and fair access to the survey. The Kuwait and Algeria results came in too late to include in the BBC Arabic coverage. Syria could not be included due to the difficulty of access.

For legal and cultural reasons some countries asked to drop some questions. These exclusions are taken into account when expressing the results, with limitations clearly outlined.

You can find out more details about the methodology on the Arab Barometer website.

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Boris Johnson Is in Trouble But the British Economy Will Do Better Than Most. – Bloomberg

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Boris Johnson Is in Trouble But the British Economy Will Do Better Than Most.  Bloomberg



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BOE's Cunliffe Says Economy Is Slowing Due to Spending Squeeze – Bloomberg

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BOE’s Cunliffe Says Economy Is Slowing Due to Spending Squeeze  Bloomberg



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