July 4, 2022

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Inflation is the biggest poison for the global economy

Inflation is the biggest poison for the global economy

Europe and the United States face a high probability of a recession as central banks are forced to tighten monetary policy aggressively to combat inflation, according to German Bank CEO Christian Swing.

US Federal Reserve, European Central BankAnd the Swiss National Bank and the Bank of England Everyone acted last week to rein in inflation, albeit to varying degrees.

Eurozone consumer price inflation hit a A new record high of 8.1% in May The European Central Bank has confirmed his intent To start raising interest rates at its July meeting.

Central bank leaders and economists around the world have acknowledged that the tight tightening that may be needed to rein in inflation could risk tipping economies into recession, with growth already slowing due to a confluence of global factors.

A Deutsche Bank AG flag flutters outside the company’s Wall Street office in New York.

Mark Kozlaric | Bloomberg | Getty Images

Europe’s proximity to the war in Ukraine and its dependence on Russian energy imports makes the continent uniquely vulnerable to conflict and Possible stop of Russian gas flows.

“One thing is clear: If there is a sudden stop of Russian gas, then obviously the probability of a recession soon will be much higher. There is no doubt,” Swing told CNBC’s Annette Weisbach in an exclusive interview.

“But I would say that in general, we have such a difficult situation that the probability of a recession also in Germany, or in Europe in 2023 or the year after, is higher than we have seen in any of the previous years, and that is not only the effect of this horrific war, but look at Inflation, see what that means for monetary policy.”

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Besides war-induced inflation in Ukraine and associated sanctions on Russia, supply chains have also faltered due to increased post-pandemic demand and the return of Covid-19 control measures, most notably in China.

“This is a difficult situation where we have three or four drivers that can severely affect the economy, and all together simultaneously means there is enough pressure and a lot of pressure on the economy, so the potential for a recession in Europe as well as in the United States is very high,” said Swing. “.

Sewing: Inflation ‘really worries me’

Given this confluence of challenges, Swing said he is increasingly reluctant to rely on traditional models as the economy faces a “perfect storm” of “three or four real levers that could, ultimately, cause a recession.”

But Swing said inflation was the biggest concern.

“I would say inflation is the thing that worries me the most, and therefore I think the signal we’ve been getting from the central banks, whether it’s the Fed but now also the European Central Bank, is the right one,” he said.

“We need to fight inflation because at the end of the day, inflation is the biggest poison for the economy.”