Top CEOs fear the worst in Europe

Top CEOs fear the worst in Europe

Europe’s top CEOs fear a eurozone recession as a confluence of economic shocks continue to threaten the bloc’s outlook.

Alex Kraus | Bloomberg | Getty Images

LONDON — The CEOs of several blue-chip European companies have told CNBC they see a major recession coming to Europe.

The continent is particularly vulnerable to fallout from the Russian-Ukrainian war, associated economic sanctions and energy supply problems, and economists have downgraded growth forecasts for the eurozone in recent weeks.

The Eurozone is facing concomitant economic shocks from the war in Ukraine and soaring food and energy prices exacerbated by the conflict, as well as a supply shock resulting from China’s zero- Covid. This has raised concerns about “stagflation” – an environment of low economic growth and high inflation – and a possible recession.

“Of course we see a big recession going on, but that’s exactly what we’re seeing – it’s happening. There’s always overhanging demand because of the Covid crisis that we’re on. about to leave,” said Stefan Hartung, CEO of German engineering and technology giant Bosch.

“It’s still there and you see it hitting us hard in China, but you see that in many parts of the world consumer demand has even increased in some areas already.”

In particular, Hartung noted lingering consumer demand for appliances, power tools and vehicles, but suggested that would dissipate.

“That means for a while that demand will still be there, even though we see interest going up and we see prices going up, but at some point it’s not just going to be a supply crisis, it’s also going to be be a demand crisis, and then for sure we’re 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 US Federal Reserve, which have both started raising interest rates in an effort to contain 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 initiate monetary tightening. , depending on the economic outlook.

Berenberg chief economist Holger Schmieding said in a note on Friday that near-term risks to economic growth point to the downside in Europe.

“Wider Chinese lockdowns and cautious consumer spending in response to high energy and food prices could easily cause a temporary contraction in eurozone GDP in the second quarter,” Schmieding said.

“An immediate embargo on gas imports from Russia (very unlikely) could turn this into a deeper recession. If the Fed gets it seriously wrong and catapults the US straight from a boom into a bust (unlikely but not totally impossible), such a recession could last until next year.”

Still, Schmieding suggested that the eurozone would likely only go into recession “if the worst comes to the worst,” and that was not a baseline expectation.

Mark Branson, chairman of German financial regulator BaFin, said any military escalation in Ukraine or further disruption to energy supplies could pose serious risks to growth in Europe’s biggest economy, with industrial sectors particularly vulnerable. .

“We’re already seeing growth down to around zero in many jurisdictions, including here, and it’s vulnerable. It’s also vulnerable to ongoing Covid-related shocks,” he said.

“We have inflation that is going to have to be tackled, and it is going to have to be tackled now, so it is a cocktail that is difficult for the economy.

“Difficult business environment”

Slawomir Krupa, deputy chief executive of Societe Generale, told CNBC on Thursday that the French lender was closely monitoring the macroeconomic situation.

“This is obviously fundamental news for the macro backdrop and the inflation feedback loop triggered between the energy shock – which was already happening before the war in Ukraine – you have the rising inflation expectation and the risk of a final and fundamental impact on the macroeconomics in recession,” he said, adding that it would potentially affect “the whole system, and (SocGen) as well.”

Mercedes-Benz CEO Ola Kallenius also told CNBC last week that the situation in China and the war in Ukraine are creating a “challenging business environment” for the German luxury automaker in three distinct ways.

“On the one hand, we have the ongoing shortages primarily associated with semiconductors. On top of that there are now new lockdowns in China, our biggest market, which will affect us in China but may also affect supply chains around the world, and on top of that, of course, war in Ukraine, so the business environment is difficult,” he explained.

His comments were echoed by Volkswagen CEO Herbert Diess, who told CNBC on Thursday that the company also faced a “challenging environment” from Covid, chip shortages and war in Ukraine in the first quarter.

Maersk CEO Soren Skou said on Thursday that the world’s largest shipping company was also monitoring recession risks, particularly in the United States, but did not expect them to materialize until the end of 2022 or the beginning of 2023.

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