By Sudeep Sonawane
October 29, 2022
World Meteorological Organisation’s forecast for Europe over the next fortnight will give consumers shivers, specifically to people in the United Kingdom. The forecast predicts most King regions of Europe will face harsher winter this season.
The weathercaster says winter will arrive earlier this year. Christmas will be colder, drier and less prospects of wind. Consider the forecast for London this November. The mean daily minimum temperature will hover around 5.8 degrees Celsius and mean daily maximum temperature around 11.3 degrees. In December these extremes would drop to 3.4 and 8.4 degrees.
Winters in northern hemisphere are usually intense and cold. Nothing new, one would say. What’s so frightening then? Well, the consequences of colder weather forecast mean higher energy bills for consumers. This is bad news with Europe and rest of the world dealing with slow economic growth and hyperinflation.
The UK currently suffers its most severe economic meltdown. Its consumers face inflation rate of more than 10 per cent, high-energy prices, industrial unrest, and an economy gasping for policy relief.
UK’s new Prime Minister Rishi Sunak faces the daunting task of fixing these economic issues as well as bringing unit and stability to the country that has recently acceded new Monarch,- King Charles the Third, to the throne.
The coronation of Charles III and his wife, Camilla, as king and queen of the United Kingdom and the other Commonwealth realms is set to take place on Saturday, May 6, 2023 at Westminster Abbey.
Energy supply and its prices and prices of other commodities remain at the front of consumer concerns in Europe. The approaching harsher winter would make it worse. Further, the prospects of the Russia ending hostilities against Ukraine look bleak. Russian invasion of Ukraine on February 24 this year entered its ninth month last week. The war has disrupted supply of gas and other goods to Europe. The economic sanctions clamped by the US and its allies against Russia ensure the war of attrition will simmer on the sidelines of the battlefields in Ukraine.
Ukraine’s Ministry of Economy last week said the country’s economy has plummeted around 30pc in the first three quarters of 2022 compared with the same period in 2021. This is mainly because of Russia invading it and inflicting large-scale infrastructural damage.
Policymakers and regulators elsewhere in Europe, too, worry about the economic stagnation and high inflation. Many countries currently face recessionary trends, slow growth, high inflation, and low GDP forecasts [Refer table of the Real Gross Domestic Product data sourced from the International Monetary Fund].
The IMF expects significant inflationary pressure around the world in 2022. It has forecast harsh impact on developing economies. Such countries would have to deal the with cost of living reaching 9.9pc on average in the remaining months of this year. In developed countries this figure will remain around 7.2pc.
Countries dealing with political instability, internal strife, hostilities with neighbouring country and economic problems will see inflation rates far above the global average of 8.8pc, IMF says. Experts list Venezuela, Sudan, Zimbabwe, Turkey, and Argentina in this list.
The IMF made upward revision of inflation forecasts by 3.3pc for developed nations and by 4pc for developing nations after Russia invaded Ukraine in February. “This shows even before the war in Ukraine disrupted global energy and food supplies, inflation projections had already been high as supply chains overstretched by restocking needs after the end of major Covid-19 lockdowns had already caused inflation to rise to levels not seen since the aftermath of the Great Recession,” the IMF says.
Some regulators have decided to rein in inflation. The European Central Bank Thursday increased interest rates by 75bps to 1.75pc. This is the highest rise since 2009. The central bank has cut subsidy to commercial banks as well. ECB President Christine Lagarde told a press conference Thursday in Frankfurt, “We will have further rate increases in the future.”
In a press statement the ECB said, “The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. With this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation. The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2pc medium-term inflation target.”
Inflation remains far too high and will stay above the target for an extended period. In September, euro area inflation reached 9.9%. In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation. The Governing Council’s monetary policy is aimed at reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations, the ECB said in the press statement.
Earlier this year, the US Federal Reserve raised interest rate by 0.75%. This was the fifth hike in 2022. Will these decisions encourage consumer save more, borrow, and spend less? How will markets reacts? What will be their response? Or, will they trigger further stagflation?
Oman Daily Observer first published this opinion article October 28, 2022.
[Sudeep Sonawane, an India-based journalist, has worked in five countries in the Middle East and Asia. Email: [sudeep.sonawane@gmail.com]
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