Eurozone dealt with huge blow after Putin’s mobilisation announcement

EU could 'dip into recession' this year says CNBC presenter

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The Russian President ordered Russia’s first mobilisation since World War Two, warning the West that if it continued what he called its “nuclear blackmail”, Moscow would respond with the might of all its vast arsenal. At the news, the euro tumbled to a two-week low against the dollar, European stock markets slipped, and investors piled into safe-haven bonds, pushing yields on German and US government debt down.

Deutsche Bank analysts in a note today said they forecast a deeper recession for Europe next year.

They wrote: “We are revising the euro area GDP forecast for 2023 from -0.3 percent to -2.2 percent.”

Europe’s STOXX index briefly fell to its lowest since early July, while the euro stocks volatility index jumped to its highest in more than two weeks.

European Central Bank Vice President Luis de Guindos said on Wednesday that even a recession over the winter is not enough to reduce inflation without further rate hikes.

Growth has been suffering due to high energy costs and a loss of Russian gas, raising the risk of energy rationing over the winter while households and businesses take a financial hit from high costs.

“Markets believe that the slowdown of the economy would reduce inflation by itself,” Mr de Guindos told a conference.

“Actually, this is… not right. Monetary policy has to make a contribution.”

The ECB promised rate hikes at each of its coming meetings and markets see the deposit rate exceeding 2.5 percent by next spring, jumping from its current 0.75 percent level.

Mr De Guindos added that recent economic data point to a substantial slowdown of the economy, and risks to the ECB’s projection of stagnating growth in the winter months were skewed to the downside.

Inflation is “very, very” high right now, he said, and the potential prolongation of Russia’s war in Ukraine risked keeping this rate uncomfortably high for longer.

Price growth hit 9.1 percent last month and was seen inching up over the coming months before a slow decline that will still keep it above the ECB’s 2 percent target through 2024.

READ MORE: ‘Another humiliation!’ Putin’s chilling speech a ‘sign of weakness’

Guntram Wolff, chief executive of the German Council on Foreign relations in Berlin also warned: “The next six months are going to be tough. Germany was too reliant on Russian gas that was clearly a mistake.

“Now this is being addressed big time. January and February are covered by gas storage. Russia has lost a very important customer and they are not going to get it back.

“The public sees the cruelty and nihilism of Putin’s Russia and they are not willing to give in to blackmail”

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Colin Asher, senior economist at Mizuho Corporate Bank in the UK, echoed: “The initial implications are clear: it’s a potential escalation which is negative for the outlook in the eurozone, and so it’s unsurprising that the euro is weaker. It has boosted risk aversion more broadly, so the dollar is stronger.

“It was interesting to me that dollar/yen dipped on the news of the announcement, potentially indicating a return of the yen’s safe-haven credentials which have been absent for much of the year.

“If the conflict in Ukraine escalates then that’s clearly negative for growth, but it’s not clearly disinflationary. An escalation may add to supply chain strains.”

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