BRICS Rise !! Recession will occur in European countries or the eurozone

BRICS Rise!! Recession will occur in European countries or the eurozone

 Rob Subbaraman, chief economist at Japanese financial firm Nomura, predicts that a number of the world's major economies will fall into recession within the next 12 months, as central banks move to aggressively tighten monetary policy to counter surging inflation. Subbaraman's statement marks the latest prediction of many of the world's major banks regarding an economic recession. “Nowadays central banks, many of them have turned to a single mandate, and that is to bring down inflation. The credibility of monetary policy is too valuable an asset to lose. So they will be very aggressive,” said Subbaraman, who is also the head of global market research for Asia ex-Japan, Tuesday (5/7/2022). “That means an increase in front-load tariffs. We've been warning for several months about the risk of a recession. 




Now we see a lot of developed countries are really going to fall into recession," he told CNBC Street Signs Asia. In addition to the United States, Nomura also predicts recession will occur in European countries or the euro zone, Britain, Japan, South Korea, Australia and Canada next year. Subbaraman said central banks around the world have maintained loose monetary policies for too long, hoping that inflation will be temporary. “One more thing I would like to point out is that, when there are a lot of weak economies, you can't rely on exports for growth. That's another reason why we think the risk of this recession is very real and likely to happen." Regarding the US, Nomura forecast a shallow but long recession of five quarters starting from the last quarter of 2022. “The US is about to fall into a recession – so negative quarter-on-quarter GDP growth started in the 4th quarter of this year. 

It will be a shallow but long recession. We saw it for five consecutive quarters,” said Subbaraman. It is known that the Federal Reserve or the US central bank and the European Central Bank are among the major central banks trying to boost inflation by raising interest rates. The Fed raised its benchmark interest rate by 75 basis points to a range of 1.5 percent to -1.75 percent in June, and Fed Chair Jerome Powell has indicated there could be another 50 or 75 basis point hike this July. "The Fed is going to tighten this recession and from that because we see inflation as sticky - it's going to be difficult to come down," said Subbaraman. “We've already seen that the Fed's monetary policy rose 75 basis points in July and then 50 at the next meeting.

 Then a series of 25 basis points will occur until the Fed's interest rate is at 3.75 percent in February next year," he explained.
In his research note, Nomura underlined several other countries including Australia, Canada and South Korea that experienced price spikes in the debt-driven housing sector. The Nomura report said these countries risk a deeper-than-expected recession if rising interest rates trigger housing failures and deleveraging. "One of the unusual ones is in China, which has recovered from recession as the economy is open amid accommodative policies, but there is the risk of new lockdowns and another recession, as long as Beijing sticks to its zero-Covid-19 strategy," the note said. Subbaraman warned that, if the central bank does not tighten monetary policy to bring down inflation now, the heavy impact on the economy from moving to a high inflation regime will be much greater. 

"This will lead to a downward spiral in wage prices, which is even more painful for the economy and for society in the long run," he added. Meanwhile, the collective West's action on freezing Russia's foreign exchange reserves has become a cold shower for most countries around the world. Trust in the current international financial system has been undermined in even the countries most loyal to the US and the European Union. It's clear that reliance on potentially hostile holders of your money in critical situations turns those assets into burdens. “We understand that the role of the dollar and euro which they played to this day as a reserve has been exhausted. 

Their role has been exhausted not only for Russia, but also for countries who understand that now their savings in this currency are practically not protected. They can impose restrictions at any time,” said Vladimir Chistyukhin, First Deputy Chairman of the Central Bank of the Russian Federation in St. Petersburg International Legal Forum. The West's actions actually denounce the operation of the financial and legal mechanisms that have existed for the last half century. Serious questions arise both about the freezing of the country's foreign reserves and about the procedure for confiscation of property from the Russian oligarchs. According to the records of the International Monetary Fund (IMF), the situation has resulted in central banks around the world trying to diversify their foreign exchange reserves into currencies such as the yuan. 

Already earlier this year, the share of the dollar in world foreign exchange reserves fell below 59%, but in the spring the downward trend accelerated again.
Perhaps the turning point in the history of international trade was Vladimir Putin's statement at the BRICS Business Forum that all countries in the combined economy have been working to create a new international currency. It will be based on a basket of BRICS currencies namely the Russian ruble, Chinese yuan, Indian rupee, Brazilian real and South African rand. The new currency can not only become a means of payment, but also an alternative for replenishing the reserves of the BRICS countries and their partners. 

The share of payments in the national currency of BRICS is growing exponentially. At the moment, its share is almost 40%, although in 2013-2014 it did not exceed 2-3%. Nikita Kondratyev, Deputy Director of the Department of Multilateral Economic Cooperation and Special Projects at the Russian Ministry of Economy, said that in the near future, this share could reach 50%, not only in the energy sector, but also in trade in agricultural products and consumer goods. This estimate is supported by news of Saudi oil transactions in yuan. This decision will avoid inflationary pressures, as the US dollar and euro are based on large amounts of printed money and do not have a solid basis. Instead, the BRICS currency will be based on tangible goods traded on the exchange, namely oil, rare earth metals, wheat, rice, coffee, and so on. 

All BRICS countries are wholesalers and their specialties are fundamentally different. This export structure provides countries in the BRICS with complementarity and increases investor interest.
Russia dominates exports of mineral fuels, fertilizers, pig iron and steel. China dominates industrial goods, electrical appliances, furniture and textile products. India dominates gems, pharmaceuticals, textiles and software. Brazil dominates mineral fuels and oilseeds; South Africa dominates gems, natural resources and fuel.



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