European Stock Markets: Europe Stares at Recession; Russia appears to be on track beating forecasts

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The possibility of a European recession hit equity markets on Tuesday as the euro fell to its lowest level in two decades and the pound fell to its lowest since the current pandemic.

Shares fell in London and across Europe as a surge in natural gas prices intensified pressure on the European economy, according to a report in The Guardian.

The single currency fell 1.5% to $1.025 against the US dollar, the lowest since late 2002. The pound fell below $1.20 to hit a two-year low at 1.19 dollar, the weakest point against the dollar since March 2020. Oil also fell. to its lowest since mid-May as recession fears mounted, with Brent crude falling more than 9% to below $103 a barrel, and US crude crossing the $100 a barrel mark,” according to The Guardian.

Meanwhile, Russia appears to be on track for a much shallower recession than initially expected this year, Bloomberg reported on Wednesday, citing experts. The surge in oil shipments has softened the impact of US and EU sanctions, experts said.

According to Bloomberg, economists at JPMorgan Chase, Citigroup and other major banks are cutting their outlook for output declines this year to just 3.5%. Russian officials, some of whom predicted a contraction of up to 12%, are now preparing to update their forecast to less than half.

Seasonally-adjusted data from the Development Center of the Moscow Higher School of Economics showed that industrial production in Russia rose 1.7% in May from the previous month. “The pause in the contraction in May could be a sign that producers were initially adjusting to the shock of anti-Russian sanctions,” the center said.

Economists pointed to a rebound in oil production due to growing domestic demand and a shift to export buyers in Asia as an important driver for Russia’s economy. Gas production has been another key economic driver, fueling revenue gains thanks to soaring prices.

“We are not at the stress level that we assumed for 2022,” Rosbank economist Evgeny Koshelev told Bloomberg. “We should expect better trends as fiscal and monetary policies are broadly stimulative.”

According to the Guardian article, the German DAX index lost 3% and the French CAC fell 2.8%. “Investors fear that rate hikes by central banks desperate to tackle soaring inflation could push economies into recession. A further disruption in Russian energy supplies would also trigger a European slowdown,” reported The Guardian quoting the analysts.

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