The G7 Finances have had happier times. It is against the backdrop of a gloomy and unstable macro-economic context that the Ministers of the Economy or Finance of seven of the ten countries with the greatest wealth are meeting for two days in Paris starting this Monday, ahead of the summit which will bring together their respective heads of state or government next month. The various financiers of these developed countries find themselves, as it were, at the bedside of a world economy which is suffering the consequences of the war in the Persian Gulf.
More than eleven weeks after the start of the American and Israeli strikes, Washington and Tehran have still not reached an agreement and the ceasefire remains fragile. The almost total stoppage of maritime traffic in the Strait of Hormuz, where nearly a fifth of the world’s oil and a significant quantity of industrial raw materials normally transit, continues to weigh on the costs and smooth running of value chains.
This crisis, which has no end in sight, will not leave the economies of the world unscathed, even if it remains difficult to grasp its scale, without knowing the epilogue of the crisis in the Middle East. Each day of additional disruption that passes further seizes the workings of international trade.
“So far, the global economy has not held up too badly. What is worrying is that we are sliding from a transitional shock scenario to a lasting shock scenario. The meeting between Donald Trump and Xi Jinping was a milestone that everyone had in mind as a hope of resolving the difficulties. It is clear that this has not resulted in a solution. We are entering a world of scenarios where things can drag on for longer and longer,” projects Charles-Henri Colombier, director of the Conjoncture and Perspectives division at the Rexecode institute.
The recent indicators in advanced economies, concerning the first quarter, already draw a bleak starting point, knowing that these are data which essentially document the level of activity prior to the war in Iran. In Germany, for example, the annual growth forecast has been halved. Just as worrying, French growth stalled during the first three months of the year.
“This risks lastingly affecting European economies, at least until the end of the year.”
If it is now established, in the eyes of the International Monetary Fund for example, that global growth will be weaker than expected, even if the ceasefire continues, economists remain cautious about the future of events. In particular on the risk of two quarters where growth would decline, which defines a recession. “It is still too early to talk about a recession, what we are observing is rather a significant slowdown in the world economy,” notes Thomas Grjebine, economist and head of the “international macroeconomics and finance” program at CEPII (Center for Prospective Studies and International Information). “Rising energy prices are affecting our economies. This is unfortunately only the beginning, because with a barrel price above $100, this risks having a lasting impact, at least until the end of the year, on European economies,” he anticipates.
“We are not at this stage in a recession scenario,” also considers Sylvain Bersinger, economist and founder of the Bersingéco firm. “In the figures for the first quarter, the temptation that can be made is the link with the war, but the impact is not yet clearly perceptible. It will take several months for oil prices to spread throughout the industrial chain. At this stage, we are experiencing a mini oil shock, an energy crisis, but not a crisis such as we experienced in the 1970s or in 2022 in Europe. There is a shock, in the sense that oil supply has decreased by 10 to 15%, but we are not at price levels which suggest that we are going towards a recession,” he explains.
“We have not yet entered into a recessionary dynamic. We are rather getting closer to zero growth, if things continue. With a barrel of Brent at 100 dollars, we are getting closer to this type of configuration for economies that clearly import oil, with varying degrees of vulnerability,” summarizes economist Charles-Henri Colombier.
“On the verge of technical recession for a certain number of European economies”
The impacts of soaring oil prices are not homogeneous depending on the country, whether we are talking about the United States, European countries or Japan. “It is less violent for the American economy, for which it is an issue of internal redistribution. The American energy sector benefits from the crisis, this has a positive effect on its exports. Retail sales in April were not particularly bad,” notes the Rexecode economist. Conversely, the weaknesses of several European countries are highlighted. Particularly those where energy production is the least carbon-free. “We are undoubtedly on the verge of a technical recession for a certain number of European economies,” he continues.
“American growth was around 2% in the first quarter [en rythme annualisé]this is twice as much as European growth. The American economy is resilient, and it should remain so due to their position as the world’s leading oil producer,” Thomas Grjebine also insists.
This Monday, bad news arrived from the second largest economy in the world. China has published its industrial production and retail sales figures. These are the lowest in more than two and a half years. “Consumption in China is slipping, industrial production figures are also worse than expected. We see that this slowdown in growth does not only affect the European economy but all world economies.
Many Asian economies, whose dependence on supplies from Gulf countries is greater, are also vulnerable in the current context, as we explained in mid-March. “Emerging economies have already entered into a logic of fairly strong shortage,” warns Charles-Henri Colombier. The boom in semiconductor exports is allowing economies like Japan, South Korea and Taiwan to resist.
On the inflation front, the significant levels for 2022 are still far from being reached. But certain signs are already serving as a worrying signal. Last week was marked by a sharp rise in interest rates for government loans, sanctioning the lack of solution during the United States-China summit. “The outlook for inflation is becoming higher, because the risk is that of a Ukrainian-style scenario where the conflict persists for many months, even years, without a real solution,” mentions Charles-Henri Colombier.
“To what extent could states that are already very indebted provide budgetary stimulus? HAS”
If the price of a barrel remains above 100 dollars, there is a risk that inflation will settle above 2% in Europe, and probably above 4% across the Atlantic, according to this analyst. “The question is: what will central banks do? If the crisis persists over time, it will become difficult for them not to react. It has become very likely that the European Central Bank will raise its rates by the end of spring, which would be an additional driver of slowdown,” imagines Charles-Henri Colombier.
On the public finances front, the brutal rise in sovereign rates is being scrutinized like milk on fire in the countries with the most degraded public finances. And not just for the renewal of the stock of debts. “Real rates [ajustés de l'inflation, ndlr] do not necessarily increase. But if there were to be a new crisis, to what extent could already highly indebted states provide budgetary stimulus? » asks Sylvain Bersinger.
An international response, coordinated within the framework of the G7, is also far from obvious. The subject does not appear formally in the agenda set under the French presidency. It is only a question of ensuring fair conditions of competition between the major economic centers, or of securing access to key raw materials in the economies of the 21st century. “The G7 summit aims more at a structural response, in particular to the problems of global imbalances, China’s record trade surpluses, or the reduction of dependencies on supplies of critical minerals,” recalls Thomas Grjebine.
“I’m a little afraid there won’t be anything in terms of coordination. The biggest player has no desire to coordinate with anyone, Donald Trump has launched a trade war, and a war in short, he does as he pleases,” worries economist Sylvain Bersinger.
“We can perhaps wait for certain announcements, which would put a little oil in the wheels, and mitigate the effects of the shock which is spreading. We can think of additional releases of strategic oil stocks. But it is not the G7 which provides a unique and lasting solution to the crisis that has arisen,” recalls Charles-Henri Colombier. “The real discussion remains between the United States and Iran. » This Monday, Tehran, for example, formalized the creation of a new body for the management of the Strait of Hormuz, responsible for managing traffic in this arm of the sea vital to the world economy. The United States, for its part, maintains its own blockade of Iranian ports. The thinning will have to wait.
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