Europe on the brink of recession, is there a risk for Bulgaria?

Europe on the brink of recession, is there a risk for Bulgaria?
Europe on the brink of recession, is there a risk for Bulgaria?

The risk of eurozone countries falling into recession has reached its highest level since July 2020 amid growing concerns that a possible winter energy shortage will cause a contraction in economic activity. It will affect many people as unemployment is likely to increase. An economic downturn can also lead to a “cooling” of the real estate market due to curbing demand. This means that properties may become cheaper, which is bad news for owners who bought them at higher prices, especially those with mortgages.

What is a recession?

A recession is a significant decline in economic activity that lasts for months or even years.

A country’s economy is in recession when, within a certain period, there is negative dynamics of gross domestic product (GDP), production activity and incomes shrink, unemployment increases and retail sales fall, experts quoted on the website of Forbes magazine.

Recession is considered an inevitable part of the business cycle – the sequence of growth and decline that characterizes a country’s economic development.

When a country goes into recession, the economy of a country experiences serious difficulties, many people lose their jobs, the sales and turnover of companies decrease, and overall real production declines. Determining when a nation’s economy is officially in a recession depends on a variety of factors.

The American economist Julius Shiskin in 1974 formulated several postulates that determine when an economy has fallen into recession. The most popular is: “when there are two consecutive quarters of negative economic growth as measured by the country’s gross domestic product (GDP)”.

“A vibrant economy has seen growth over time. So when there are two consecutive quarters of contraction in manufacturing activity, that’s a sign that that economy is experiencing serious structural problems,” notes Shiskin.

Eurozone countries on the brink of recession?

The probability of the euro zone economy contracting for two consecutive quarters within 12 months has risen to 80 percent, according to economists polled by Bloomberg.

In previous polls, experts estimated this risk at 60 percent, but before Russia invaded Ukraine – at only 20 percent.

The German economy, which is the largest in the Eurozone and is among the most dependent on restrictions on Russian gas supplies, will most likely shrink as early as the current quarter, Bloomberg notes.

Households and businesses across Europe are bracing for a potential energy shutdown after Russia sharply cut natural gas supplies to the region. Added to this problem are record inflation and supply chain issues. Data from a number of surveys show that economic activity has been contracting since July, with little prospect of improvement in the near term.

Against this background, inflation in the eurozone is expected to reach 9.6 percent in the final three months of the year, or almost 5 times the level of just under 2 percent that the European Central Bank (ECB) is aiming for, the economists’ analysis said. participated in the Bloomberg survey. They do not expect the average inflation rate in the euro area to approach the 2 percent target until 2024.

A risk for Bulgaria too?

Europe will fall into recession this winter as the supply of Russian natural gas through the Nord Stream 1 pipeline in the coming months will fluctuate between 0 and 20 percent, according to an analysis by experts from the research and analysis division of the Economist magazine. ” (The Economist Intelligence Unit), announced in mid-August.

The economies of Hungary, the Czech Republic and Slovakia will suffer the most, not only because of their dependence on Russian gas, but also because the effect of the recession in Germany will affect them the most due to their strong economic ties with the Federal Republic.

Economist experts expect the contraction of industrial activity in Germany to affect the economies of many countries in the region. The main “blow” on them will be caused by high energy prices, the decline in consumer confidence and weak exports. Bulgaria and the Baltic countries are particularly exposed to these risks, analysts note.

How does the recession affect people’s lives?

The recession will affect many people as it is possible that they or some of their relatives will lose their jobs because many companies will be forced to resort to layoffs due to shrinking of their operations.

Another negative effect of the economic downturn is the “cooling” of the real estate market due to limited demand. This means that average prices may fall, which is bad news for owners of properties bought with mortgages during the boom.

In the conditions of a possible jump in interest rates on loans against the background of a sharp increase in the main interest rates by the leading central banks, it is possible to raise the installments on the loans. If a property owner with a mortgage fails to pay the higher installments for a certain period, it is possible that their loan will be declared in default and the home that they used as security for their loan will be put up for public sale. If this happens in the conditions of “cooling” of the real estate market, then the property can be sold at a lower price than the one at which it was purchased. Thus, its owner will lose it without being able to fully cover his obligation to the bank, that is, he will no longer own a property, but at the same time part of his debt will remain unpaid.

The article is in bulgaria

Tags: Europe brink recession risk Bulgaria

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