World Meteorological Organisation’s forecast for Europe over the next fortnight will give consumers shivers, specifically to people in the United Kingdom. The forecast predicts most regions of Europe will face harsher winter this season.
The weathercaster says winter will arrive earlier this year. Christmas will be colder, drier and less prospects of wind. Consider the forecast for London this November. The mean daily minimum temperature will hover around 5.8 degrees Celsius and mean daily maximum temperature around 11.3o C. In December these extremes would drop to 3.4o C and 8.4o C.
Winters in northern hemisphere are usually intense and cold. Nothing new, one would say. What’s so frightening then? Well, the consequences of colder weather forecast mean higher energy bills for consumers. This is bad news with Europe and rest of the world dealing with slow economic growth and hyperinflation.
The UK currently suffers its most severe economic meltdown. Its consumers face inflation rate of more than 10 per cent, high-energy prices, industrial unrest, and an economy gasping for policy relief. UK’s new Prime Minister Rishi Sunak faces the daunting task of fixing these economic issues as well as bringing unit and stability to the country under a new Monarch King Charles III.
Energy supply and prices remain at the front of consumer concerns in Europe. The approaching harsher winter would make it worse. Further, the prospects of the Russia stopping its hostilities against Ukraine look bleak. Russian invasion of Ukraine on February 24 this year entered its ninth month this Monday. The war has disrupted supply of gas and other goods to Europe. The economic sanctions clamped by the US and its allies against Russia ensure the war of attrition will simmer on the sidelines of the battlefields in Ukraine.
Ukraine's Ministry of Economy last week said the country’s economy has plummeted around 30 per cent in the first three quarters of 2022 compared with the same period in 2021. This is mainly because of Russia invading it and inflicting large-scale infrastructural damage.
Policymakers and regulators elsewhere in Europe, too, worry about the economic stagnation and high inflation. Many countries currently face recessionary trends, slow growth, high inflation, and low GDP forecasts.
The IMF expects significant inflationary pressure around the world in 2022. It has forecast harsh impact on developing economies. Such countries would have to deal the with cost of living reaching 9.9 per cent on average in the remaining months of this year. In developed countries this figure will remain around 7.2 per cent.
Countries dealing with political instability, internal strife, hostilities with neighbouring country and economic problems will see inflation rates far above the global average of 8.8 per cent, IMF says. Experts list Venezuela, Sudan, Zimbabwe, Turkey, and Argentina in this list.
The IMF made upward revision of inflation forecasts by 3.3 per cent for developed nations and by 4 per cent for developing nations after Russia invaded Ukraine in February. “This shows even before the war in Ukraine disrupted global energy and food supplies, inflation projections had already been high as supply chains overstretched by restocking needs after the end of major Covid-19 lockdowns had already caused inflation to rise to levels not seen since the aftermath of the Great Recession,” the IMF says.
Some regulators have decided to rein in inflation. The European Central Bank is likely to raise interest rates by 75bps to 1.75 per cent on Thursday (while writing this article). Further, the central bank is likely to cut subsidy to commercial banks. Earlier this year, the US Federal Reserve raised interest rate by 0.75 per cent. This was the fifth hike in 2022.
Will these decisions encourage consumer save more, borrow, and spend less. How will markets react? What will be their response? Or, will they trigger further stagflation?
(Sudeep Sonawane, an India-based journalist, has worked in five countries in the Middle East and Asia. Email: sudeep.sonawane@gmail.com)
Oman Observer is now on the WhatsApp channel. Click here
