The current tough economic environment across Europe has led to many firms turning to short-term liquidity in a bid to weather the storm.
A report in Bloomberg has noted the situation echoes that of the ‘worst days of the coronavirus pandemic’, with European high-grade companies taking out facilities that are set to mature in less than two years. The news service said data it compiled indicates these firms have sealed €76bn of short-term financing in 2022, which it notes is the highest on record since the €153bn extended in 2020.
Jacqueline Poh, writing for Bloomberg, said: “The increase in emergency funding is a worrying sign as central banks fight to tame surging inflation. The European Central Bank last week doubled its key interest rate to the highest level in more than a decade, while the US Federal Reserve is expected to remain hawkish when it delivers its latest monetary policy decision on Thursday.” The report cited the firms Koninklijke Philips NV, Enel SpA, Daimler Truck AG and Axpo Holding AG – all of whom have recently sought out short-term loans.
These developments come at a time when Europe’s economy is coming under strain from the fuel crisis and high inflation. This week, The New York Times reported inflation across the continent has now reached 10.7%, with more than half of the eurozone countries now seeing double-digit rises in consumer prices.
The New York Times wrote: “A startling new jump in consumer prices in Europe signals that inflation has more stubbornly burrowed its way across the continent despite slowing growth, complicating policymakers’ efforts to steer economies through a difficult winter and possible recession. Consumer prices in the 19 countries that use the euro as their currency rose at a record annual rate of 10.7% in October, the European Commission reported on Monday. In September, the rate was 9.9%. Twelve months ago, it was 4.1%.”
The same paper earlier reported that recession was looming, even if some European economies were still growing. Germany, it reported, saw its economy grow 0.3% between July and September, far higher than the -0.2% predicted in some quarters. “But growth slowed in France and Spain,” it added. “The European Union’s second-largest economy, France, grew 0.2% in the quarter, down from 0.5% in the previous period. Consumer spending slipped as record inflation in September pushed consumer prices 6.2% higher, government data showed.”
‘Higher for longer’
Elsewhere, the IMF has warned Europe must move to tackle high inflation and flagging growth. Writing on its blog, Alfred Kammer, director of the European department at the IMF, said: “Europe’s advanced economies will grow by just 0.6% next year, while emerging economies (excluding Türkiye and conflict countries Belarus, Russia, Ukraine) will expand by 1.7%, according to projections in our latest World Economic Outlook. That’s down by 0.7 percentage point and 1.1 percentage points, respectively, from July’s projections.”
He added: “Even without any new energy supply disruptions, inflation could remain higher for longer. Most of the inflation surge so far is driven by high commodity prices – primarily energy, but also food, particularly in the western Balkan countries. While these prices might remain elevated for some time, there is hope that they will stop increasing and thereby contribute to a steady decline in inflation throughout 2023.”