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Macro Snapshot — War in Ukraine Slows Eurozone Growth; inflation is rising worldwide

RIYADH: The Russian invasion of Ukraine and the resulting spike in energy and commodity prices will reduce economic growth in the Eurozone this year and next, while driving inflation to record levels, the European Commission predicted on Monday.

The commission cut its growth forecast for the 19 countries sharing the euro to 2.7% this year, down from 4% predicted only in February, shortly before the start of the war in Ukraine. Growth will then slow to 2.3% next year, also below the 2.7% seen previously.

The forecast is the first comprehensive estimate of the economic cost of the conflict at its neighbor for the euro zone and the wider EU of 27 countries.

“The outlook for the EU economy before the outbreak of war was one of prolonged and robust expansion. But Russia’s invasion of Ukraine has posed new challenges, just as the Union has recovered from the economic impacts of the pandemic,” the commission said in a statement.

“By putting further upward pressure on commodity prices, causing further supply disruptions and growing uncertainty, the war is exacerbating pre-existing headwinds to growth that were previously expected to ease.”

Inflation, which the European Central Bank wants to keep at 2%, will be 6.1% this year, according to the Commission’s forecast, and will fall to 2.7% – still well above the target of the ECB – next year. Before the war, the Commission expected prices to rise by 3.5% in 2022 and 1.7% in 2023.

The scenario of an abrupt gas supply cut by Russia would raise inflation by another 3 percentage points in 2022 and another 1 percentage point in 2023, the Commission said.

Polish net inflation

Poland’s net consumer price index excluding food and energy rose 0.8% in April to 7.7% year-on-year, according to a chart released Monday by the central bank.

Analysts polled by Reuters had expected net inflation of 7.5% in April, excluding food and energy prices, year-on-year.

German manufacturing logbook

The order book for German manufacturers is at a record high, according to a survey released on Monday, as companies grapple with supply bottlenecks to meet strong demand.

Even without a single new order, production could continue for 4.5 months, the Munich-based ifo institute said in a statement, citing the results of a survey in which around 2,000 companies took part between 7 and April 22.

In the previous survey, in January, the figure was 4.4 months, while the long-term average of an order book was 2.9 months, the institute said. Data is seasonally adjusted.

“This recent increase in the order book is only slight, indicating that new order intake is gradually declining,” said Timo Wollmershauser, head of forecasting at ifo, adding that German manufacturing would “really take off” if the chain supply had problems. should diminish in the coming months.

April property sales in China

China’s property sales in April fell at their fastest pace in about 16 years as COVID-19 shutdowns further dampened demand despite further policy easing measures aimed at reviving a key pillar of the world’s second-largest economy. .

Property sales in value in April fell 46.6% from a year earlier, the biggest drop since August 2006, and widening sharply from the 26.17% drop in March, according to the Reuters calculations based on National Bureau of Statistics data released on Monday.

January-April property sales in value fell 29.5% year-on-year, compared with a 22.7% drop in the first three months.

A further cut in mortgage interest rates for some homebuyers announced by Chinese authorities on Sunday left investors and analysts little convinced that it could revive sluggish real estate demand.

Wholesale prices in Japan

Wholesale prices in Japan in April jumped 10% from the same month a year earlier, data showed Monday, rising at a record pace as the Ukraine crisis and weak yen drove up the cost of energy and raw materials.

The surge in the business goods price index, which measures the price businesses charge each other for their goods and services, marked the fastest year-on-year rise in a single month since comparable data became available in 1981.

The gain follows a revised 9.7% increase in March and was above the median market forecast for a 9.4% increase.

Unlike other central banks which are worried about soaring inflation, the Bank of Japan (BOJ) has maintained its ultra-loose monetary policy, believing that rising cost inflation is not bringing long-term price expectations at its 2% target. .

“Companies have tried to absorb the rising costs through their efforts, but since last year it has become more difficult for them to bear,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“They will have no choice but to pass on these additional costs.”

Japanese companies have been slow to pass on rising costs to households, as weak wage growth is doing little to improve consumer confidence and making them cautious about scaring off consumers with price hikes.

The yen-based import price index jumped 44.6% in April from a year earlier, data showed on Monday, a sign that recent declines in the yen are inflating the cost of imports for Japanese companies.

Last month, the BoJ forecast that core consumer inflation would hit 1.9% in the current fiscal year which started last month before moderating to 1.1% over the fiscal years. 2023 and 2024 – a sign that she sees current price increases as transitory.

But analysts expect consumer inflation to hover around 2% in the coming months as high commodity costs force more companies to raise prices, posing a risk to the economy. Japan’s fragile economic recovery.

“It all ultimately depends on whether or not consumers accept price increases,” Minami said. “While they’re likely to be OK with it to some extent, they won’t fully accept it, leading to lower spending.”

Friday’s data is expected to show Japan’s core consumer price index (CPI), which excludes volatile fresh food costs but includes energy costs, rose 2.1% in April from from a year earlier, slightly beating the BoJ’s target, according to a Reuters poll last week.

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