A recent article published by Deutsche Bank says that a recession is increasingly likely. It also points out that the economies of Italy and Germany are the most vulnerable to such an event. As such, a few companies like General Motors and Ford Motor Company are on high alert.

Inflation expected to average 6.2% in 2023

Inflation is a measure of the health of a country’s economy. It is calculated by the consumer price index (CPI), which shows the change in the price of a basket of goods and services over a period of time. Inflation in the US has increased in the past year, and the rate is expected to continue increasing until 2023. The economy is expected to slow down, and the annual inflation rate is expected to fall to 3.2% by the end of the decade. Current inflation is higher than it has been in decades. However, it is below levels seen in the 1970s. High prices of energy and food may continue for some time, but are likely to decrease over the next two years. Recent research indicates that demand and supply shocks contributed to the recent increase in prices. A study by the Federal Reserve Bank of San Francisco suggests that changes in demand explained one-third of the increases in prices. Overall, the increase in consumer demand is only going to continue through the holiday season and beyond. Prices are expected to begin to fall faster than wage increases, which should be good for consumers and businesses. As the health of the economy continues to improve, a decrease in the risk of a major illness should encourage an increase in spending. However, the effects of this could take several years to fully take effect. One way to gauge the strength of inflation is to compare it to the business cycle. Although there is no clear connection between current inflation and the phase of the business cycle, it is likely that the economy is entering a recession. Other factors, such as a supply chain mess, are also affecting consumer costs. Government measures have been taken to try to reduce the amount of cost increases. Some officials are still debating how much of an impact these measures will have. Despite these concerns, the SPF consensus predicts that core CPI inflation will slow from 6.3% in 2022 to 3.5% in 2023. This is due to lower unemployment and slower growth in the labor market.

German and Italian economies most at risk from a recession

The Italian and German economies are the two most at risk of a recession. The euro area is expected to enter a recession in the second half of 2018. Italy is suffering from stagflation, a sluggish economy. Inflation is increasing at an alarming rate due to high energy prices. It is also facing the effects of high interest rates. These pressures are weighing on the private sector and the public sector finances. The Italian government has introduced structural reforms to try to deal with the financial crisis. This has included a senate reform and an electoral law. However, unemployment remains high. According to the International Monetary Fund, Italian GDP is forecast to contract by 0.2% next year. However, it should rebound in the third quarter. One of the key challenges for the Italian economy is its aging population. This could worsen the sustainability of the country’s large debt. As of last year, Italy’s debt was estimated to be 151% of its GDP. That’s more than Greece’s debt. Unemployment is running at a record 12.5%. The labor force is aging and the country is running out of young people to replace the workforce. Adding to the problem is the brain drain. Thousands of high-skilled workers have left the country in the past decade. They haven’t been replaced by immigrants with similar education levels. As a result of the recession, consumer spending has taken a hit. Companies have begun to slash production and lay off staff. Consumers are shifting to discount stores. The European Union is pushing the Italian government to advance with economic reforms. In the meantime, Italy is facing serious risks from high interest rates, disruptions to gas supplies, and soaring natural gas prices. Rising interest rates pose refinancing risk for corporates and the private sector. Banks are expected to tighten their lending criteria. The government has also passed two major austerity packages, one led by Silvio Berlusconi and the other by Mario Monti. Both aimed to reduce the country’s public debt. Germany is one of the strongest members of the Euro Area. However, it’s expected to see the fastest decline in next year.

Global economic downturn increasingly likely

As global economic activity slows, analysts and bankers warn that a deep recession is increasingly likely. A new report from Deutsche Bank is among the latest to say so. It predicts a major US recession in the next year or two. The report is an update to its pessimistic World Outlook 2023 report. It was co-authored by chief economist David Folkerts-Landau and former Fed official Peter Hooper. The report’s main claim is that the Federal Reserve is further behind the curve than in the early 1980s, when inflation was at an all-time low. While Fed officials acknowledge that the cost of reining in inflation is moderate, they’re not willing to stop raising interest rates until it falls to half its current level. But the report also cites several other developments that will contribute to higher-than-average inflation. Among them, the war in Ukraine and its accompanying supply chain disruptions will add to the inflationary potency of the country’s economy. Another cited development is the European Central Bank’s announcement in April to raise its key interest rate. Analysts say the move is an attempt to bring inflation under control. Meanwhile, the United Kingdom economy is forecast to contract by 0.2% in the year. That’s a significant revision from the 1% growth predicted in its latest forecast. Nevertheless, the UK economy is expected to return to growth in the second half of the year, while Europe is projected to remain in a mild recession. Inflation is a critical concern at the moment. In April, consumer prices in the United States climbed to 8.5%, the highest rate in 40 years. Despite the Fed’s efforts to stabilize prices through its interest rate increases, the price of gas and other fuels continued to rise. This repercussion is having a pronounced impact on the global economy. Overall, the report says that the global economy is likely to recover in the mid-2020s, but that individual economies will continue to be weak. However, the recession may be milder than the most recent projections. Earlier this month, Deutsche Bank lowered its predictions for the year to a slight recession. It argued that the United States is still in the doldrums, while the eurozone and other Western Hemisphere economies are recovering strongly.

General Motors and Ford Motor Co. are watching for signs of a U.S. recession

A number of U.S.-based automakers have been watching for signs of a possible recession. They are confident that they can weather the storm. Despite the recent Federal Reserve rate hike, they are confident that consumer demand remains strong. The increase in interest rates, rising fuel prices, and high inflation could all slow car sales. But pent-up demand could help Michigan’s automakers. Analysts have been cutting Detroit automakers’ profit estimates in tandem with downbeat global economic outlooks. GM and Ford’s shares have fallen. Combined, the two companies have lost about $80 billion in value. While the market seems to have priced in a recession, analysts say it is not yet time to panic. The Detroit automakers have been able to navigate recessions in the past. Their margins and free cash flow have been largely intact. Now, however, they face the same problems as a broader economy: higher costs. In addition, energy and commodity prices are a major threat. Automakers are experiencing supply chain problems. While they haven’t seen as many inventory stalemates as they did in the past, they are still having trouble meeting demand. Some manufacturers have been forced to build vehicles that are partially completed. GM has said they are trying to trim the inventory of these unfinished cars. Meanwhile, Ford has been plagued with parts shortages. It has recalled 2.9 million vehicles, including the Ford Escape and Ford Edge. According to a Bloomberg report, CEO Jim Farley has been considering ordering job cuts to help the company with these issues. Both companies have also been putting more emphasis on long-term initiatives, including the development of electric cars. They have also been dialing back on new hires. This strategy has helped them boost revenue and offset higher costs for supply chain problems. Still, both automakers are confident that their vehicles will sell. GM says its demand is strong. At the same time, the company is assessing how rising gasoline prices, high interest rates, and inflation will affect its business. Ford said it expects to book $1 billion in unexpected supplier costs during the third quarter. However, the company still faces a number of quality problems. And its credit arm is seeing an uptick in loan delinquencies. If you like what you read, check out our other finance articles here.