Eurasia Press & News
France’s economy, the euro zone’s second-biggest economy, growth unexpectedly ground to a halt in the first quarter while Germany, Europe’s largest economy, faces possibility of tipping into recession. The war in Ukraine is the major cause of this situation.
A Reuters report said:
France’s economy growth unexpectedly ground to a halt in the first quarter as consumer spending dropped in the face of soaring energy prices and war in Ukraine, preliminary data from the INSEE official stats agency showed on Friday.
Preliminary data showed no change in gross domestic product (GDP) for January-March, marking a sharp slowdown from the final three months of 2021, when the euro zone’s second-biggest economy expanded 0.8%, which was revised up from 0.7% previously.
While a slowdown had been expected, the reading was worse than expectations for growth of 0.3% in a Reuters poll of 24 economists, whose forecasts ranged from 0.6% to -0.1%.
Household spending, the traditional driver of French growth, fell 1.3% in the quarter amid waning consumer confidence.
The government has put together a 25 billion euro ($26.3 billion) package of measures to help protect consumers’ dwindling purchasing power and consisting in large part of caps on gas and electricity price increases.
But that did not stop the cost of living from being a major theme in France’s presidential election this month.
Citing INSEE’s GDP report, the Reuters report said:
Domestic demand subtracted 0.6 percentage points from first-quarter growth, while business inventory rebuilding added 0.4 points and foreign trade added another 0.1 points.
Germany
Another Reuters report from Berlin said:
The German government’s reduced forecast for 2.2% growth this year does not assume a Russian energy embargo or blockade and the economy would tip into recession if either of those transpired, Economy Minister Robert Habeck said on Wednesday.
Habeck’s ministry on Wednesday cut its growth forecast for 2022 to 2.2% from 3.6% projected in January as the war in Ukraine, sanctions against Russia and high energy prices take a toll on output. It also raised its 2022 inflation forecast to 6.1%.
Germany’s support for Ukraine and sanctions against Russia resulted in the lower growth and higher inflation forecasts, Habeck said, telling a news conference: “We must be prepared to pay this price”.
An economy ministry official said an escalation of the gas situation with Russia would reduce growth in Europe’s largest economy by between 0.5 and 5.6 percentage points, depending on the scenario.
Habeck said Germany took this situation very seriously but that German companies would continue to pay for Russian gas in euros, respecting contracts.
Germany’s dependency on Russian gas had dropped to 35% of imports from 55% before the war in Ukraine, he added.
Asked whether Germany could consider expropriating a refinery in Schwedt operated by Russian state-owned Rosneft, which accounts for all of Germany’s remaining Russian oil imports, Habeck said: “We are in a situation where the German government must adapt to and prepare for all scenarios. What is conceivable, we are thinking about and preparing politically.”
Russia Has Resources To Fulfill Debt Obligations, Claims Regulator
Media reports from Russia said:
Russia’s Finance Ministry has all the resources to fulfill its obligations, any default is out of the question, head of the Bank of Russia Elvira Nabiullina said after a meeting of the Board of Directors of the regulator on Friday.
“Concerning the Finance’s Ministry’s obligations on debts, I would like to reiterate that the ministry has the resources, and economically, there can be no question of any default,” she said.
However, Nabiullina admitted that there are difficulties with payments.
“I hope that all this will end up successfully,” she added.
Earlier, IMF European Department Director Alfred Kammer said that the low level of Russian sovereign debt and market conditions reduce the risks for the Russian government in case of a possible technical default.
According to the data of the Russian Finance Ministry, as of February 1, 2022, Russia’s external public debt amounted to $59.5 billion, including debt on external bond loans – $38.97 billion. In total, the Russian Federation has 15 active bond loans with maturity periods from 2022 to 2047.
Interest In Gold Increasing
Media reports said:
Central banks across the world have a particularly increased interest in gold. Financial regulators in Egypt and Turkey purchased 81 tonnes of gold in the past quarter. The West’s move to freeze the Russian Central Bank’s foreign currency reserves may boost other foreign regulators’ demand for gold as a reserve asset, said experts interviewed by Kommersant.
“Investors are actively buying physical gold because the recent political steps that the United States took are causing concern about the sustainability of the dollar as the main reserve currency,” Head of the Bond Department at Ingosstrakh Investment Nikolay Ryaskov noted.
Investor demand for gold will remain the key consumption driver in the coming quarters. Portfolio Manager at Alfa Capital Dmitry Skryabin expects that the increasing risks of a global economic downturn amid rising geopolitical tensions will support demand for the defensive asset.
In addition, the precedent of freezing Russia’s foreign currency reserves may have long-term consequences, making other countries diversify their own assets and replacing the dollar with gold.
“Demand for gold as a tool for the diversification of gold and foreign currency reserves may come first and foremost from Asia and the Middle East,” Skryabin stressed.
