Several major central banks will raise interest rates this week. Again. And probably violently again. At the same time, the current increase in rates reduces the growth of individual economies, and according to many economists, a recession can no longer be avoided. However, this is not a mistake, but a feature, according to central bankers. They are trying to siphon off some of the money that is causing the current inflation from the financial world.
In the economy, nothing is free, but costs can take a significant amount of time to show up. Proof of this is the current wave of inflation, which is the result of a number of decisions from previous years. These are the words of Martin Slané, Chief Economist of the DRFG Financial Group. And so do central bankers around the world.
That’s why now they are not only trying to correct their decisions from the years following the 2008 financial crisis. That’s when they came up with two essential remedies for the financial crisis – cutting rates down to negative values and buying bonds, the so-called quantitative easing.
The result: a massive increase in money in the economy, which led to the explosive growth of everything. The economy of individual countries, company profits, share prices, salaries and wages, but also real estate prices… The result? The rise in inflation is now difficult to manage.
The Fed may surprise and raise rates more than expected. Growth of 75 to 100 points is on the table
The Fed is likely to raise interest rates by 75 basis points in the coming week. This is estimated by the Bloomberg agency, according to which the American central bank is being pushed to such a step by “hard data” from the development of the local economy.
Read the article
It will hurt
This is why central banks all over the world, especially this year, are radically turning the rudder of monetary policies and raising rates. According to Bloomberg data, 90 central banks have already raised rates this calendar year, most of them at least once resorting to a one-time increase of 75 basis points. At the same time, it is expected that the American Fed will also repeat a similar jumpthe Bank of England will increase its rates by at least 50 points.
The heads of the world’s leading central banks present their goal clearly: Without a rate hike, inflation will skyrocket even more. We must act. And yes, it will hurt. “We’re going to cause quite a bit of pain to households and businesses,” US Fed chief Jerome Powell said.
The current action of the central bankers has only one goal – to suck a significant part of the money out of circulation. This will lead to taming inflation. And according to critics, another effect will also be the halting of the growth of the economies of individual states. At the same time, the critics did not understand that it was not a mistake, but a feature, or the goal of the current measures. Only a cooling of the economy will also cool inflation.
Recession around the corner
A large part of economies is heading towards a halt in growth. Bloomberg currently estimates the growth of the US economy for 2023 at 0.9 percent, while as recently as this March it expected growth of 2.5 percent. The Eurozone predicts growth of only 0.5 percent (in the spring it was more than two percent). According to Bloomberg, Britain will fall into recession next year and its economy will decline. Meanwhile, at the beginning of this year, experts expected growth at the level of 2.2 percent.
This, of course, will lead to a number of negative effects on individual companies, and for example, the investment fund BlackRock estimates that such a decline in growth in the US will bring another three million unemployed.
Read more about the recession
Czech recession? One quarter
So far, the Czech economy is still growing, despite inflation, expected problems with energy prices and the expected reduction in household consumption. However, the Czech National Bank (ČNB), which was one of the pioneers in raising rates in the current cycle and which holds one of the highest rates in the world (7 percent), also anticipates serious falls. And that already in the fourth quarter of this year, and especially in the first quarter of next year.
In its current macroeconomic forecast, the CNB states that economic growth will de facto drop to zero at the end of this year and then drop almost a percentage point below it.
“The economy will decline in the second half of this year. A drop in household consumption following a drop in their real income will contribute significantly to this. Economic growth will resume next year,” comments the CNB forecast. The central bank now estimates the total growth of the Czech economy for 2023 at 1.1 percent. At the same time, the year 2022 is expected to end with a growth of 2.3 percent, on the other hand, in 2024, the domestic economy will grow at a rate of 3.8 percent.
Fiala called for reasonable energy management, the state will set an example
In today’s extraordinary speech, Prime Minister Petr Fiala (ODS) called for reasonable management of gas and electricity. According to him, the government, state organizations, companies and households should consider whether they are handling energy correctly and how not to waste it. Sensible energy management will save everyone’s own money, but also reduce the expenses of the state budget, he said. According to him, it will also help industry and the entire Czech economy. Fiala will consistently insist that the state and its institutions lead by example in the investigation.
Read the article
All about inflation
Inflation scarecrow. What causes it? How to defend against her? How to invest, where to save savings, where there are decent interest rates, which bonds are worth it? How do the state, the government and the CNB fight inflation? Who and why increases the price and how much? How to cope with price increases? Is it the right time to get a mortgage, will interest rates rise or fall, and for what reason? Context, tips, hints, warnings.
High inflation troubles not only the Czechia, but also other European countries and the United States. See the overview in the world.