Page 30 - bne IntelliNews monthly magazine December 2023

30 I Cover story bne December 2023
Russia is too big, too autarkic and
too deeply embedded into the global economy to be effectively sanctioned. The Fiscal Fortress Putin has built since around 2012, still has some $300bn in cash (mostly yuan and gold) despite the freezing of the CBR reserves, and only 14% of GDP of state debt – by far the lowest level of any major country in
the world.
There are too many emerging Global South markets that are too big, growing too fast and too independent of Western pressure that are willing to trade with Russia to allow the West to effectively enforce the sanctions. After the EU banned Russian oil imports in December 2022, Russia was able to reorientate its entire oil exports to Asia in a matter of months.
While Russia is still getting the foreign-made machinery it needs via the backdoor, Europe remains heavily dependent on many critical inputs it can still only get from Russia. Europe suffers from a deficit of energy, metal, food and chemicals and as it has started to de-industrialise it has become more dependent on Russia than ever. Things like Russian fertilisers, LNG, gas and grain all remain unsanctioned for this reason.
"This theme is nothing new,” said presidential spokesman Dmitry Peskov in November, when asked about the twelfth sanctions package.” This is a continuation of the search for some kind of sanctions solution, which, according to the authors of these sanctions, will hit Russia. As a rule, it turns out to have a kind of boomerang effect. The interests of Europeans suffer.”
Europe goes into recession
Global growth will fall from 6% in 2021 to under 3% this year, says the World Bank, but that is not all due to the boomerang effect. The polycrisis, persistently high food inflation and rising energy costs, the deglobalisation that followed the pandemic and the increasingly fractured world that is a result of the trade disputes between the US and China before the Ukraine war have all taken their toll.
But the boomerang effect has catalysed all these problems and hit Europe particularly hard.
www.bne.eu
The economies of Central and Northern Europe are spluttering and Germany, the engine of European growth, has stalled completely. Germany ranks bottom for business confidence in Europe, according to the latest S&P Global Business Outlook survey. Firms are forecasting cuts to both employment and investment and staff cost pressures expected to remain high for at least the next year. And its economy contracted in the third quarter as it slips into recession.
Economists are calling Germany “the Sick Man of Europe” again, although Czechia also has a strong claim to that title, as it is the only economy in Europe not to have regained its pre-pandemic size and is also bottom of the growth table. Hungary and Poland are also recovering from bouts of inflation that have been the highest in 20 years.
But the picture is very similar across most of Western Europe, although the countries of Southern Europe are faring better. The business climate in France deteriorated again in November and growth is anticipated to slow further in the fourth quarter. At the same time, the PMI indices indicate that inflationary pressures remain high and that disinflation will take time, according to ING.
The European Commission said in its Autumn Economic Forecast that energy prices remain a problem and revised down its forecasts for GDP growth in the EU and in the eurozone this year, by 0.2 percentage points to an average of only 0.6% this year before recovering slightly in 2024 to 1.3% growth. All of Austria,
Germany Consensus GDP forecast
Czechia, Estonia, Germany, Hungary, Ireland, Latvia, Lithuania, Luxembourg and Sweden will see their economies contract this year, but all, except Sweden, are expected to put in at least some anaemic growth next year.
“EU GDP growth is forecast to improve to 1.3% in 2024, still below potential and a downward revision of 0.1 pps. from summer. It is projected to gain further pace, to 1.7%, in 2025,” the EC said in its report.
More generally, the World Bank says global growth is forecast to slow from 6.0% in 2021 to 2.7% in 2023 before recovering a little in 2024 to reach 2.9%, which is being driven by the polycrisis.
The EC said while inflation in Europe is declining from 20-year highs in some European countries, the monetary policy put in place to control it, "took a heavier toll than previously expected" this year and another lacklustre quarter ahead. Some Central European banks are getting ready to ease monetary policy, but the European Central Bank (ECB) has made it clear in comments that growth-boosting eurozone rate cuts in 2024 are unlikely.
The European slowdown is not a
disaster yet. ING called it a “very shallow technical recession” in a note on November 23 and suspects the low point has already been passed. But against that, analysts say that climbing out of the bowl will take several years. The bottom line is that the anaemic eurozone economies are currently in a lot worse shape than Russia for the meantime.
Source: Bloomberg