S&P: More rate hikes and 'sticky inflation' to weigh on growth
Shares in Deutsche Bank, the European banking giant, closed almost 5% higher in Frankfurt trade, amid a relief rally. It became the latest global bank last week to face questions about its financial health.
Rate hikes and "sticky inflation" will continue to hinder the eurozone economy getting back to growth this year, ratings firm S&P Global has predicted, warning that a mild recession could still be on the cards.
In its latest assessment, the ratings firm said it expects the European Central Bank to continue to increase interest rates this summer, unless the banking turmoil of the past two weeks were to continue.
"We see an elevated risk of a mild recession down the road," said Sylvain Broyer, S&P Global's chief economist of Europe, Middle East, and Africa.
"Sticky inflation will force the ECB to raise rates for longer than we previously expected, probably until the deposit facility rate reaches 3.5% by the summer, unless the market turmoil undermines the current outlook for growth and inflation," states its outlook for the second quarter.
Part of that complicated picture is that governments will continue to help consumer spending and boost public investment, while the full reopening of China following the lifting of pandemic restrictions will boost exports from the eurozone, said S&P.
"A restrictive monetary policy will transmit to domestic demand, while interest rates should turn positive in real terms in 2024. At the same time, production and the labour market might lose steam," states the report.
Meanwhile, investors were scrambling to work out whether the calm of global markets on Monday would extend this week or signify merely that a new crisis was brewing.
Shares in Deutsche Bank, the European banking giant, closed almost 5% higher in Frankfurt trade, amid a relief rally. It became the latest global bank last week to face questions about its financial health.
March has so far seen the collapse of fellow European banking giant Credit Suisse and its enforced €3bn sale to Swiss rival UBS.
The European banking crisis was sparked after the failure in the US of Silicon Valley Bank, Signature Bank, and lender Silvergate earlier in the month.
On Monday, the sale of large parts of the loan books and deposits of the failed Silicon Valley Bank to First Citizens helped steady global nerves that there were willing buyers of distressed banking assets and deposits. First Citizen's shares jumped as much as 50%.
The sale helped boost bank shares around the world.
However, Irish bank shares ended mixed, with small gains for AIB and Bank of Ireland, while Permanent TSB shares closed slightly lower.
Fears over global banks have eased for the time being, said Chris Beauchamp, chief market analyst at IG, an online broker. "After the excitement of last week, things have calmed down, and stocks have made headway this afternoon," he said.
“Last week seemed to point towards renewed volatility thanks to the banking sector’s troubles, but these have vanished for the time being," he said, adding that "the lack of any more headlines about Deutsche Bank has been a big relief for investors, although nervousness still persists”.
