Germany and Italy will slide into recession by the end of the year as inflation continues to rise, Fitch Ratings told Bloomberg on Thursday.
Although the downturn is not expected to be “severe,” the head of sovereigns and supranationals at Fitch, James McCormack, says that “recession is significant in and of itself.”
Inflation in Germany, the EU’s largest economy, accelerated in February, rising 9.3% on the year and 1% on the month, according to the latest figures from Germany’s Federal Statistical Office (Destatis). Surging food and energy prices dealt a major blow to the country’s economy despite relief measures taken by the government.
The German economy shrank by 0.4% quarter-on-quarter in the final three months of 2022. The contraction came in larger than the previously estimated 0.2% GDP drop.
In Italy, the EU’s third largest economy, consumer prices rose 9.2% in February compared with the same period last year, down from a 10% increase in January, preliminary data from the country's statistics agency ISTAT showed on Thursday.
Purchasing power in the country more than halved over the past year, according to a report by Nomisma think tank, which said that one in seven Italians complained they earned less than they required to make ends meet. A quarter of those surveyed said they spent all their money on essentials while 26% of Italian households said they feared not making it to the end of the month.
The US is also at risk of a “modest” recession by the end of the year, McCormack told Bloomberg, adding that the “UK is already probably there.”
The economist also pointed out that governments around the world are struggling to tackle the cost-of-living crisis sparked by surging food and energy prices since the start of conflict in Ukraine. So far there is little optimism about a rapid recovery and the rising costs have sent ripples of instability throughout the global economy.
The US is facing an economic downturn that could start in the third quarter of 2023 and continue into the first quarter of 2024, Bank of America’s (BoA) chief executive, Brian Moynihan, has warned.
Speaking at the Financial Review’s Business Summit on Tuesday, he said that the downturn would not be deep, and projected interest rates to start falling in the second quarter of next year.
“It’s a very slight recession in the scheme of things. I don’t think you’ll see a deep recession,” Moynihan was quoted as saying by Reuters. “It will be more of a technical recession than it will be a deep drop in the US,” he specified.
A ‘technical recession’ means that there have been two consecutive quarters of negative growth in real GDP.
Moynihan also stated that the Wall Street bank’s forecasters estimate quarterly contractions of 0.5%-1%.
For the past year, the US Federal Reserve has made a series of interest rate hikes aimed at cooling down record inflation. In February, the regulator approved a quarter-point interest rate increase, which is the smallest one in several months, as the pace of consumer price growth has reportedly slowed.’