Welcome to Economic Monitor – a quarterly publication where we explore the key themes shaping the global economy. In this issue we ask: how big an economic shock is coming to Europe?
- The energy shock is starting to take its toll on the European economy. Activity indicators already point to a contraction in activity in some of the region’s major economies, with the services sector joining the manufacturing sector in contraction in August as inflation bites into household incomes.
- Ever since the Russian invasion of Ukraine, Europe has been facing a battle of politics, logistics, resources and time to try to replace Russian gas imports with alternative sources ahead of Winter 2022 and prior to a complete cessation of gas from Russia.
- European policymakers must prepare for the worst: they must agree how it can capture some of the windfall gains that are being enjoyed by energy producers; and they must find ways to limit the economic impact of price rises already seen on households and businesses.
- It now appears unlikely that Europe can avoid a recession over the coming quarters given the combination of energy price hikes, core inflationary pressures and rising rates.
Read and download the Q3 2022 edition of Economic Monitor here.