No recession in sight for the United States, Europe more “vulnerable” (Yellen)

The United States does not expect to enter a recession. On the other hand, it is less sure for Europe, much more affected by the crisis in Ukraine because of its dependence on Russian energy. This is in any case what estimated this Wednesday the Secretary of State for the American Treasury Janet Yellen.

“I really don’t expect the United States to fall into recession,” she detailed, during a press conference preceding a G7 meeting of finance ministers in Germany, adding: “I think Europe is maybe a bit more vulnerable and exposed on the energy front than the US.”

It thus joins the remarks of the president of the American central bank, the Federal Reserve (Fed), Jérôme Powell, who on May 4 assured that the American economy remained solid, even if growth slowed down, and that it did not present any immediate risk of recession.

Slowing US growth, the Fed’s objective to fight inflation

“The current environment is fraught with risks, both in terms of inflation and potential (economic) downturns. », added Janet Yellen. But « we currently have a great momentum of economic recovery ”, with in particular an “extremely low unemployment rate”, she tempered.

Indeed, the US economy has experienced a vigorous economic recovery after the coronavirus pandemic, thanks in particular to vast stimulus plans from the federal government. But in recent months, inflation and disruptions to global supply chains, caused in particular by the war in Ukraine and the coronavirus pandemic in China, have dampened this momentum. The country thus experienced a 1.4% drop in gross domestic product in the first quarter of 2022. But American leaders say they do not expect a technical recession, ie two quarters in a row in decline. Some experts, however, do not rule out a recession for the beginning of next year, if prices remain high despite rate hikes.

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The scenario of a recession is explained by the rise in rates necessary (triggered in March) to curb demand and consequently inflation. The equation to be solved is difficult: at what level to raise the key rates this year to control the rise in prices without causing a recession, which would have consequences on employment.

Europe in slow motion

On the other hand, dOn the other side of the Atlantic, fears are greater. HASith slow growth and record inflation, the European economy, barely recovering from the consequences of the pandemic, is bearing the brunt of the shock of the war in Ukraine and risks a recession in the months to come. The growth of the euro zone, which heavily dependent on energy supplied by Russia, is sluggish. It was 0.3% in the first quarter compared to the previous quarter and should contract further in the second quarter. All for inflation at 7.4% in April, mainly driven by energy prices.

“Eurozone GDP is expected to contract in the second quarter as the fallout from the war in Ukraine and soaring energy prices increasingly weigh on household incomes and consumer confidence, while making life is difficult for industrialists”, recently estimated Andrew Kenningham, an expert from Capital Economics.

According to him, German manufacturers will be “harder hit” than those in other European countries, “but rising energy prices will affect the whole region, as will falling demand for export products and business confidence”.

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Washington ready to lift some tariffs against China

To fight inflation, certain customs duties against China, implemented under the mandate of former US President Donald Trump, in retaliation for Chinese trade practices deemed “unfair”, are questioned by the Biden administration. US Treasury Secretary Janet Yellen agreed. Some of these tariffs “hurt consumers and businesses and are not very strategic,” she said on Wednesday. in front of the press, ahead of a meeting of G7 finance ministers in Germany.

“They don’t address the real issues we have with China, whether it’s supply chain vulnerabilities, national security issues, or other unfair trade practices,” the secretary said. statement to the US Treasury. “We are having these discussions” on the future of customs tariffs, added Janet Yellen.

U.S. tariffs on $350 billion in imports from Chine will automatically expire on July 6, if no company asks to maintain them, and the Biden administration is under pressure to remove them due to record inflation in the United States.

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(with AFP)

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