LONDON – The CEOs of several European blue chip companies told CNBC that they see a significant recession coming down the pike in Europe.
The continent is particularly vulnerable to fallout from the Russia-Ukraine war, associated economic sanctions and energy supply concerns, and economists have lowered growth forecasts for the euro zone in recent weeks. .
The euro zone is facing simultaneous economic shocks from the war in Ukraine and a surge in food and energy prices exacerbated by the conflict, along with a shift in supply stemming from China’s zero-Covid policy. That has prompted concerns about “stagflation” — an environment of low economic growth and high inflation — and eventual recession.
“Sure, we’ve seen a big recession in manufacturing, but that’s exactly what we’re seeing – there’s manufacturing. There’s a growing demand because of the Covid crisis that we’re about to leave,” said Stefan Hartung, CEO of German engineering and technology giant Bosch.
“It’s still there and you’ve seen it hit us hard in China, but you’ve seen that in many areas of the world, consumer demand has increased in some areas.”
In particular, Hartung noted lingering consumer demand for home appliances, electrical appliances and automobiles, but suggested it would fade.
“I mean for a certain period, this demand is still there, even if we see the interest rate increase and we see the price increase, but at some point in time, it’s not just a supply crisis, It will happen. It will also be a crisis of demand, and then for sure, we will be in a deep recession,” he added.
Inflation in the euro zone hit a record high of 7.5% in March. Currently, the European Central Bank remains more dovish than its peers, such as the Bank of England and the US Federal Reserve, both of which have begun to raise interest rates in a bid to curb inflation.
However, the ECB now expects to end the net asset purchases under its APP (asset purchase program) in the third quarter, after which it will have room to start monetary tightening, depending on the economic outlook.
Berenberg Chief Economist Holger Schmieding said in a note on Friday that near-term risks to economic growth are tilted to the downside in Europe.
“The worsening Chinese lockdowns and cautious consumer spending in reaction to high energy and food prices are likely to cause a temporary decline in Eurozone GDP in Q2,” Schmieding said.
“An immediate embargo on gas imports from Russia (unlikely) could turn that into a much worse recession. If the Fed gets it wrong and catapults the US goes from boom to bust (unlikely but not completely impossible), such a recession could last until next year.
Yet Schmieding suggested that the euro zone is likely to enter recession only “if the worst gets worse,” and this is not a fundamental expectation.
Mark Branson, president of the German financial regulator BaFin, said that any escalation of the military in Ukraine or further disruption of energy supplies could pose serious risks to the development of Europe’s largest economy, with the industrial sectors being particularly vulnerable.
“We’ve already seen growth drop to zero in many jurisdictions, including here, and it’s vulnerable. It’s also vulnerable from ongoing Covid-related shocks,” he said.
“We have inflation that needs to be addressed, and it needs to be addressed now, so that’s a difficult cocktail for the economy.”
Slawomir Krupa, deputy CEO of Societe Generale, told CNBC on Thursday that the French lender is closely monitoring the macroeconomic picture.
“This is clearly a fundamental piece of news for the macroeconomic context and the cause of the inflation feedback loop between the energy shock – which was already ongoing before the war in Ukraine – you have an increase in inflation expectations and the risk of a final, fundamental impact on the macroeconomy into a recession,” he said, adding that it could potentially affect “the whole system, and (SocGen) as well.”
Ola Kallenius, CEO of Mercedes-Benz, also told CNBC last week that the situation in China and the war in Ukraine make for a “challenging business environment” for the German luxury automaker in three different ways. .
“On the one hand, we have ongoing shortages mainly related to semiconductors. On top of that, there are new lockdowns in China, our biggest market, which will affect us in China but can also affect supply chains around the world, and in addition to that, of course, the war in Ukraine, so the business environment is challenging,” he explained.
His comments were echoed by Volkswagen CEO Herbert Diess, who told CNBC on Thursday that the company also faced a “challenging environment” from Covid, the chip shortage and the war in Ukraine in the first quarter.
Maersk CEO Soren Skou said Thursday that the world’s largest shipping company is also looking at recession risks, particularly in the United States, but doesn’t expect those to come to the fore until later. sometime in 2022 or early 2023.
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