European Countries’ Bleak Economic Outlook

Harvest Global Markets :

The world has been struggling to combat inflation after the critical energy crisis caused by Russia-Ukraine Invasion. Therefore, in order to grapple the infuriating inflation, economies around the world are using the weapon of aggressive interest rate hikes and European Countries are no exception. Great economies of the world are adopting aggressive monetary policy tools to push prices down through demand side, which had been sprung up by supply constraints.

Europe’s current inflation is lingering around four decade high rates i.e. 9.1% and to counter the surging prices, Euro zone has increased its inter-bank rates by 125 basis points which was jammed at 0% since 2016. Due to spiking interest rates in Europe, consumption and investment components of the aggregate demand are depicting signs of decline. As per the Flash Purchasing Managers Index released today at 1215 HRS PKT, Europe’s largest economy, Germany, documented a contractionary Index of 45.4 against a forecast of 47.2. Moreover, the second largest economy of Europe, France recorded Flash Services Purchasing Managers Index of 49.2 against a forecast of 49.9. Flash Services Purchasing Manager Index is a leading indicator of economic health for Europe as services sector of Germany and France contribute approximately 70% to their respective economies.

The signal of economic contraction in Europe dragged the EURUSD to a two decade low level of 0.9734; Euro constitutes 57.6% of the Dollar Index, a slump in Euro made Dollar Index happy as a Larry and it jumped up to a new two decade high of 112.06. As a result, metals have witnessed degradation again today with gold and silver touching lows of $1651 and $18.98 correspondingly.

Central Banks have no intention to pivot their fierce monetary policy until they experience a substantial reduction in inflation rates; consequently, recession may be hiding around the corner.

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