The earthquake has not yet hit the global economy, but the tremors are getting closer and closer together. The vigorous recovery recorded in the wake of the pandemic crisis is now only a distant memory. Month after month, growth forecasts are revised downwards, while inflation, long held in perspective by central banks, takes root.
In rich countries, concerns focus on purchasing power. In the poorest, the rise in food prices raises fears of the risk of famine. After an unprecedented period of indebtedness, exuberant rise in the financial markets and abundant liquidity, the landing promises to be brutal.
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It would be risky to imagine that it is a simple air pocket. Whichever direction forecasters turn, bad news is piling up and uncertainty is mounting. The lightning war imagined for a time by Vladimir Putin in Ukraine is bogged down, with no prospect of a short-term settlement, leading to a major energy and agricultural crisis.
In the United States, the idea of an imminent recession is gaining ground. While Wall Street is unscrewing under the effect of the rise in key rates by the Federal Reserve (Fed) and the decline in consumption, the main driver of the American economy, alarmist messages are multiplying. Fed Chairman Jerome Powell foresees a “painful” tomorrow and his two predecessors, Janet Yellen, current Treasury Secretary, and Ben Bernanke, talk about the risks of stagflation, that is to say sluggish growth combined with a sharp rise in prices.
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Europe is no better off. The signs of a slowdown are multiplying. If the price-wage spiral has not yet begun, the European Central Bank no longer hesitates to beef up its discourse on a tightening of its monetary policy. Real interest rates, i.e. nominal inflation-adjusted rates, still remain negative, but should they move back into positive territory, this would cause an uncontrolled collapse in asset prices and a crisis of over-indebtedness of which the emerging countries would be the first victims.
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Even potential good news is a double-edged sword. Thus, if a Chinese deconfinement would make world trade more fluid, Beijing will then be tempted to embark on an economic catch-up strategy which risks reigniting inflation all the more.
Public debt absent from the debates
It is striking to note that this disturbing landscape had little impact on the speeches made during the French presidential campaign. This gave rise to an escalation of promises and proposals, often unfunded, and the subject of public debt was totally absent from the debates, as if “whatever the cost” was still topical.
The prospect of legislative elections will not encourage us to adopt more realistic postures. While targeted support measures to protect the most vulnerable households in the face of inflation are essential, France’s room for maneuver is narrow. A few days ago, the Governor of the Banque de France, François Villeroy de Galhau, warned of the threat of a debt crisis in France by quoting a verse from L’Hirondelle et les Petits Oiseaux, by La Fontaine: ” We only listen to instincts that are our own, And only believe evil when it has come. The future government is warned. It is time to get out of the denial of realities.
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