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4/29/22

EU Economy: Weak EU growth and Covid-hit China raise prospect of global downturn - by Martin Arnold and Valentina Romei

New data on Friday showed that the Russian invasion is weighing on Europe’s economy, pushing up energy and food prices, worsening supply bottlenecks for manufacturers as well as sapping business and consumer confidence.

The disappointing news came a day after the US announced that its economy suffered an unexpected 0.4 per cent quarterly contraction, while worries about the impact of severe Covid-19 lockdowns in China caused the steepest monthly fall in the renminbi on record.

The Chinese currency has fallen 4.2 per cent this month to about Rmb6.6 per dollar, the biggest drop since the end of its US dollar peg, which was in place from 1994 to 2005. The fall is greater than a one-off devaluation by the Chinese central bank in 2015 that rattled global markets and a tumble in 2018 during the US-China trade war under the Trump administration.

Economists said the combination of weak global growth, soaring commodity prices and a series of expected interest rate rises by western central banks — including an unusually large 0.5 percentage point hike by the US Federal Reserve that could come next week — would spell trouble for the global economy.

“The world is in really bad shape,” said Erik Nielsen, chief economics adviser at UniCredit. “Particularly in Europe, where we have entered stagflation now.” He predicted that the eurozone was heading for a “double whammy” of an economic downturn and rising borrowing costs as the European Central Bank was likely to raise interest rates as early as July.

Read more at: Weak EU growth and Covid-hit China raise prospect of global downturn | Financial Times

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