Citigroup’s forecast for a global economic recession has reached almost 50% as central banks rush to raise interest rates to curb soaring inflation, fueled in part by the fallout from the war in Ukraine and the COVID pandemic, Reuters reported.
A recession is an “increasingly tangible risk” to the economy, Citigroup analysts wrote as they assessed the likely trajectory of global growth over the next 18 months.
“Historical experience shows that a reduction in inflation often comes at a significant cost to economic growth, and we see the overall probability of a recession now approaching 50%,” analysts at a major US bank said.
Citigroup pointed out that while the risks of a recession are higher, the three scenarios – for the so-called “soft landing” of the economy, higher inflation, and a global recession are plausible and should continue to be monitored, and at this stage, the base scenario seems to be closer to the so-called “soft landing” (a smoother slowdown in economic growth).
At the same time, the British bank Barclays expects that the growth of developed economies may slow to 1% in 2023 and that the Eurozone may enter a recession from the fourth quarter of the current fiscal year, BNR reports.
“The U.S. economy is about to collide with the Federal Reserve, which appears committed to raising interest rates well above the so-called ‘neutral level,’ and the ongoing slump in new home sales is likely a harbinger of things to come.” indicated by the bank.
Barclays expects US economic growth to slow to 1.1% in 2023, which would represent a sharp slowdown from the 5.7% expansion in 2021.
Several central banks, including the US Federal Reserve, have begun aggressively raising interest rates as the cost of living hits record highs due to soaring inflation.
On Wednesday, Fed Chairman Jerome Powell said the central bank was not trying to trigger a recession but was committed to bringing prices under control.
ECB: Banks to prepare for a recession
The banks of the eurozone must “recalculate” their capacity and pay dividends. They should also reconsider doing a share buyback in the light of a possible gas embargo, which could cause a financial crisis.
The ECB will ask the banks in the eurozone to take into account in their business plans the possibility of the sale and to use these new calculations when receiving the proposals for the dividend payment. This was stated by the head of the European Central Bank.
The ECB continues to forecast the economic burden for this year and next. Experts believe that the escalation of the war in Ukraine, which may lead to a reduction in the supply of natural gas, will lead to the unfavorable scenario of introducing ozone into the deep underground.
Ennia stresses that the economic outlook could become “much worse” if there is an embargo on gas and a subsequent recession, leaving banks in a “much tighter” situation.
Andrea Enria emphasizes that the economic prospects can become “much worse” if there is an embargo on gas and a subsequent recession, leaving the banks in a “much tighter” situation.
“We will ask the Turkish banks to recalculate their capital scenarios in the worst-case scenario, including a potential gas embargo or the possibility of fracking”. This was explained by the director of the ECB, to the Economic and Monetary Affairs Committee of the European Parliament.
He added that this proposal will be discussed by the ECB’s Governing Council next week.
The gradual lowering of interest rates proposed by the ECB would be of benefit to the banks. The ECB warned that it is also a part of a more rapid increase in interest rates, which will affect bank customers, especially in the case of a greater impact on the interest rates on loans and deposits.
However, the current cycle is marked by increased volatility and lower valuations of the construction capital. The guards expect that the profitability and quality of the banks’ assets may be affected by unfavorable macroeconomic changes.
Therefore, the net income from fees and commissions and the results from the transactions are cool, which leads to positive trends in the net operating income of the banks.
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