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On the verge of a recession – that is how UK’s economic state can be described. Analysts at Goldman Sachs forecast that British GDP will fall by around 0.7% in the second quarter. In the third quarter, 0.1 percent growth is expected, but let’s be honest with each other, nothing is certain nowadays. The drop in the consumer confidence index to minus 41 points in June suggests that the worst-case scenario is still highly probable.
Goldman estimates the probability of a recession in what was once the world’s first economy over the next 12 months at 45%. By comparison, in the case of the Eurozone, this figure does not exceed 40%, and in the U.S. – 30%. What about the Central Bank? Considering annual inflation soared to 9.1% in May (the maximum in the last 40 years), there is not much hope for help from the regulator. In addition, the key rate is expected to be raised by 50 bps at the August meeting.
Speaking of the economic situation in the country, it is impossible to ignore the weakening of the pound sterling. Since the beginning of the year, the USD/GBP pair has soared by more than 11%. During the same period, the USD/EUR pair has risen by 8.4%. On the one hand, it is good news for British exporters, particularly, mining and energy companies. On the other hand, a weak pound is fueling inflation.
And how are things in Scandinavian countries?
Starting with Norway, thanks to the rising energy prices, money is literally pouring into the country. The only problem in the country is inflation. To alleviate the pressure, the local Central Bank will continue to tighten monetary policy. The main catch is that a further increase in the key rate will lead to increased costs for Norwegian households and businesses.
In Sweden, the country’s finance minister has recently said that due to high inflation and rising interest rates, growth will slow down in the second half of the year. Overall, Sweden’s economy is expected to grow 1.9 percent in 2022 and 1.1 percent in 2023, before rising to 2.1 percent in 2024. So, nothing to worry about yet, however, things change pretty drastically these days.
Finally yet importantly, according to the local Ministry of Finance, rising costs and interest rates are weighing on the economy and the construction sector in particular. Overall, the operating environment is now far from optimal for investment. Finland’s overall GDP growth is expected to be 1.5% in 2022. Regarding energy independence, the country is planning to promote investment in nuclear energy, embrace hydrogen and boost renewable output as part of new energy and climate strategy.
