Analysts say that the continuous (partial) supplies of Russian gas during the summer are not enough to resolve the crisis, as the risks of shutdown will persist in the winter. The bleak outlook for the European economy also comes as the European Central Bank announced its intention to raise interest rates for the first time since 2011 as inflation in the Eurozone reached a record high of 8.6%.
Central banks around the world face a dilemma as they try to contain inflation without slowing down economic momentum, which appears to be weakening and could culminate in a global recession. Meanwhile, most analysts expect gas supplies to remain tight in the eurozone and gas prices to remain high. This is one of the reasons why we believe that the Eurozone economy may slip into recession this year.
Germany also posted its first trade deficit since 1991 as higher energy prices pushed up import costs for Europe’s largest economy, while global trade problems disrupted exports (including to China).
“Given the nature of German exports, which are sensitive to commodity prices, it is hard to imagine that the trade balance could improve significantly from here over the next few months given the expected slowdown in the eurozone economy,” said Saxo Bank strategists.
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