On the day America officially slides into recession with -0.9% in the second quarter, which guarantees Jerome Powell a perfect alibi to slow the bull cycle before Wall Street takes a serious hit, Europe is back at the heart of the crisis. And for the umpteenth time Germany and not one of the so-called peripheral countries is the epicenter of the new alarm.
This chart
Development of the consumer confidence index in the euro zone Source: Bloomberg / Zerohedge
shows how the consumer confidence index in the euro zone has hit a new all-time low, even worsening the levels reached during the height of the Covid lockdowns. In addition, fears of a contraction in the economy are growing in 11 of the 19 eurozone countries, according to Bloomberg results that accompanied the EU Commission’s data. Another negative record, further down compared to sentiment during the pandemic.
And if Greece and Estonia top the ranking of the most pessimistic nationshere are these two other graphics
Development of the German consumer confidence index Source: Bloomberg
Development of the German Harmonized Price Index HICP Source: Bloomberg / Zeroehdge
they put the seriousness of the situation into perspective. When German consumer confidence has fallen to an all-time low, effectively sanctioning the official status of a recession for the second half of the current year, that will cause a stir the jump in inflation in the former European locomotive, which rose again in July to 8.5% on an annualized basis from 8.2% previously and compared to forecasts of a decline to 8.1%. The drivers of the rebound in the upward dynamics of prices were, of course, food and energy, which could not only offset the positive effects of the reduction in excise taxes on fuel and government subsidies for the use of public transport, but also bring them further in the harmonized HICP was negative.
But if that in and of itself seems enough to cause concern for the coming fall, here’s what resembles the proverbial nail in the coffin that BASF CEO Martin Brudermüller was thinking a load of ninety at the time hold the conference call following the publication of the results data. According to the manager of the German multinational in the second quarter, BASF paid an additional €800 million to keep its factories open and operationaldue to high energy costs, which have increased compared to the same period of 2021.
And the almost certain worsening of the Russian gas supply crisis has led Martin Brudermüller to warn that we are already reducing production at plants that require large amounts of natural gas, such as B. those associated with ammonia. This could lead to a critical supply due to reduced production and consequent price increases for fertilizers, the basic element of which is ammonia.
Translated, more critical issues on agriculture and the food sector, again one of the two drivers of the new jump in inflation. Along with the energy that leads BASF to drastic decisions of de facto wartime rationing, even before the government calls for draconian interventions of this magnitude. All of this while Russia has reduced natural gas flow through Nord Stream 1 to 20%, pushing spot market valuations towards new records.
And the need for a full payout of the potential $15 billion the federal government has put on the table to bail out Uniper is becoming almost a certainty and ensuring regular distribution to households and businesses, thereby maintaining the flow of funds to purchase gas on the market at prohibitive prices. The recession is already here. And Berlin is his vanguard. Attention, because news like the one confirmed by BASF amounts to a death sentence for suppliers and affiliated companies. At home and abroad, Italy is the leader.