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The eurozone faces concurrent economic shocks from the war in Ukraine and rising food and energy prices exacerbated by the conflict, coupled with a supply shock from China’s zero-Covid policy. Europe’s top CEOs fear a eurozone recession as a confluence of economic shocks continues to threaten the bloc’s prospects.
LONDON – CEOs of several European blue chip companies have told CNBC they are seeing a significant recession looming in Europe. The continent is particularly vulnerable to the aftermath of the war between Russia and Ukraine, associated economic sanctions and concerns over energy supply, and economists have long lowered growth forecasts for the the euro in recent weeks. The eurozone faces concurrent economic shocks from the war in Ukraine and rising food and energy prices exacerbated by the conflict, along with a supply shock stemming from China’s -Zero Covid. This has raised concerns about “stagflation” – an environment of low growth and high inflation – and a possible recession.
“For sure, we see a big recession in the making, but that’s exactly what we see — it’s in the making. There is still an overhanging demand because of the Covid crisis we just are about to leave,” said Stefan Hartung, CEO of German engineering and technology giant Bosch.
“It’s still there and you see it heavily hitting us in China, but you see that in a lot of areas in the world, the demand of consumers has already even been increased in some areas.
That means for a certain amount of time, this demand will still be there, even while we see the interest increase and we see the pricing increase, but at some point in time, it won’t be just a supply crisis, it will also be a demand crisis, and then for sure, we are in a deep recession,” he added.
Inflation in the euro zone hit a record high of 7.5% in March. So far, the European Central Bank has remained more dovish than its peers, such as the Bank of England and the U.S. Federal Reserve, both of which have begun hiking interest rates in a bid to rein in inflation.
However, the ECB now expects to conclude net asset purchases under its APP (asset purchase program) in the third quarter, after which it will have room to begin monetary tightening, depending on the economic outlook.
Berenberg Chief Economist Holger Schmieding said in a note Friday that near-term risks to economic growth are tilted to the downside in Europe.
“Worsening Chinese lockdowns and cautious consumer spending in reaction to high energy and food prices could easily cause a temporary contraction in Eurozone GDP in Q2,” Schmieding said.
“An immediate embargo on gas imports from Russia (highly unlikely) could turn that into a more serious recession. If the Fed gets it badly wrong and catapults the U.S. straight from boom to bust (unlikely but not fully impossible), such a recession could last well into next year.”
Maersk CEO Soren Skou said Thursday that the world’s largest shipping company is also keeping an eye on recession risks, particularly in the United States, but does not expect those to come to the fore until late 2022 or early 2023.
Ola Kallenius, CEO of Mercedes-Benz, also told CNBC last week that the situation in China and the Ukraine war are making for a “challenging business environment” for the German luxury automaker in three distinct ways.
“On the one hand, we have the ongoing shortages mainly associated with semiconductors. On top of that, there are now new lockdowns in China, our biggest market, which will affect us in China but also can affect supply chains across the world, and in addition to that, of course, the Ukraine war, so the business environment is challenging,” he explained.
Slawomir Krupa, deputy CEO at Societe Generale, told CNBC on Thursday that the French lender is monitoring the macroeconomic picture closely.
“It’s obviously a fundamental piece of news for the macroeconomic context and the triggered inflation feedback loop between the energy shock – which was already going on before the war in Ukraine – you have the inflation expectation rising and the risk of a final, fundamental impact on the macroeconomy into a recession,” he said, adding that this would potentially affect “the entire system, and (SocGen) as well.”
