The sanctions against Russia are having an effect, on enemies and friends alike. Last month, the “first mover” economic index clearly pointed the way towards recession. At the beginning of May, the downturn deepened further. Europe is hit particularly hard. The overall Eurozone index drops to -22.6 points.
War only knows victims. The traces of the Ukraine conflict are also becoming increasingly visible in the economy.
The economic dimension of the Ukraine conflict is becoming increasingly precarious. The sentix overall economic index for the Eurozone fell in May for the third time in a row, reaching -22.6 points, the lowest value since June 2020. Situation and expectations values lost about 5 points in equal measure.
Expectations are as low as they were last in December 2008, making it clear that the economic downturn is now taking on a dimension that is likely to lead to considerable distortions in equities, but also to an increase in risk provisions for banks. Within two years, the Eurozone economy is experiencing its second crisis of significant proportions.
What makes the situation particularly difficult is that the central banks’ hands are tied to a certain extent due to the clear inflation problems. A look at the sentix thematic barometers shows that only the weak economy is currently having a dampening effect on interest rates.
Inflation, fiscal policy and also the expected restrictive central bank course are weighing on the development of interest rates. If recessionary developments now also become visibly apparent, risk managers all over the world will probably have their hands full.
The German Minister of Economics, Habeck, knows what the considerable sanctions against Russia mean. There is much more at stake than just rising energy prices or an uncertain supply situation for individual products.
A look at the sentix economic expectations for Germany shows the full drama. With a value of -32.8 points, expectations have sunk to an all-time low, even dwarfing the slump in 2008. The situation drops by only 2.5 points.
The opening steps after the expiry of the Corona virus measures and the overhang in private savings in the last two years mean that the situation values are slumping more slowly than would otherwise be the case. But the direction is definitely the wrong one.
Although the US economy is clearly doing better than Europe’s and the defence industry in particular is a big beneficiary of the current situation, the economic environment in the US is also deteriorating. The sentix overall index fell for the sixth time in a row to -2.9 points. Expectations have also fallen sharply again. The -21.8 points represent the lowest value since January 2019!
Monetary policy is also having an additional negative impact in the USA. The second interest
rate hike in the past week was certainly not the last. After the third rate hike, things usually got even more uncomfortable for equities in the past.
While most countries have largely or completely loosened their Corona Virus restrictions in recent months, the Chinese government is imposing sharp lockdowns. After Shanghai, now Beijing. This has a double impact not only on China but on the entire global economy: via shortages of products and rising prices. No wonder, then, that the global aggregate, as well as the Asian indices, are suffering in tandem with the other world regions
