For two months, impossible to get a table in the four restaurants of Romain Fontell. The turmoil has returned to Barcelona. After two years of stagnation, cruise ships, big concerts and festivals have finally returned to the city, accompanied by the tourist crowds. Hotels no longer hang vacancy signs, and money pouring into restaurants fills cash registers. It’s the start of a promising summer. “The figures have already exceeded 2019 and the forecasts for the coming months are very good”, rejoices Fontell. His restaurants have survived the pandemic and he says they have learned to deal with inflation. But he doesn’t want to anticipate what might happen in the fall. “We learned to live day by day,” he says. But until then, new threats will once again cloud the economic recovery. Indeed, analysts are already seeing signs of a recession.

Economic forecasts have become impossible, even in the short term. The backlash that followed the global pandemic has faded. A year ago, international organizations predicted very strong growth in the euro zone, close to 4%. The European Central Bank (ECB) was the last institution to lower it, to 2.8%. In other times, any economist would think more than twice before pronouncing the word “recession”. This is no longer the case. Headwinds are blowing towards Europe from all directions, especially from Russia. The prolongation of the war in Ukraine and the adoption of new rounds of sanctions could accentuate the rise in prices and further damage growth in the euro zone. If Moscow decides to close the gas tap, Europe could even find itself facing a freezing winter.

Everything suggests that the Europeans have decided to take a break during the summer. In Spain, where many are still eligible for savings schemes and an improving labor market – with more open-ended contracts – means hotels and restaurants will be bustling. “We are seeing consumers are willing to spend their savings, and recreation and tourism are included in this plan. Everything suggests that it will be a good season,” says Ángel Talavera, analyst at Oxford Economics. From EU command posts, the summer in Spain, Italy or Greece is seen as a balm to compensate for the setback that industry and construction in Germany may experience this quarter.

But among economists, expressions like “black autumn” are beginning to spread. “Fingers crossed” is all Barcelona restaurateur Fontell can say. If all goes well, Europe — and Spain — will continue to grow. The influential German institute Ifo expects the European locomotive to grow by 2.5% this year and 3.7% the following years. The director of Analysis, Timo Wollmershäuer, explains that the war in Ukraine, the energy crisis and the confinements in China have already forced the forecasts for this year to be lowered by 1.5 points compared to those made at the end of 2021. If all of this had hit the German economy in normal times, we would have fallen into recession”, he comments.

All organizations’ forecasts, however, are full of asterisks and footnotes. Pandemic-related risks are dissipating, but new geopolitical threats are emerging. “In Europe, the story could be even darker than in the United States because of the prospect of a Russian energy boycott,” warns Adam Tooze, historian and professor at Columbia University.

The ECB has sketched out an alternative scenario to its central forecasts in which it envisages a complete shut-off of the tap by Vladimir Putin. The Kremlin has already blocked supplies from several EU partners, such as the Netherlands and Finland, and reduced shipments to Germany, France and Italy. Europe, however, fears that Moscow will go further, with cuts that involve rationing and prices that continue to soar.

This assumption, according to the ECB, already suggests much weaker growth for 2022, of 1.3%, and a contraction of 1.7% in 2023. Inflation would also become more persistent and would average 8%. this year and 6.4% thereafter. Higher prices would eat into household incomes and consumption would be depressed. In other words, the dreaded stagflation. Despite its limited exposure to Russia, it would be abnormal if Spain were not drawn into this dynamic.

The pandemic has shown how quickly any crisis, health or economic, spreads across the planet. And Europe’s main trading partners are beginning to show signs of exhaustion. This week, in the United States, an overheated economy has already experienced two phenomena that have not gone unnoticed by economists. First: Wall Street has entered a sharply bearish trajectory after racking up losses of more than 20% since its all-time high on Jan. 4. Second: the yield curve has inverted; that is, two-year bonds have yielded more than ten-year debt, indicating short-term pessimism. Either way, analysts see signs that a recession is on the way.

More alarming than these two signs is the consensus of economists and businessmen who are already talking openly about a recession in 2023. If they say it will be short-lived, 70% of economists polled in a FinancialTimes survey support this view. “Inflation is above target and the Federal Reserve needs to bring it down by raising interest rates and slowing demand and the economy,” says Jonathan Wright, professor of economics at Johns Hopkins University, who coordinated the investigation.

The central bank, chaired by Jerome Powell, wants its aggressive interest rate policy to cause, at most, a soft landing for an economy that has recovered quickly from the pandemic and with a very strong labor market. However, Wright considers this unlikely. “Given the inflation picture, it’s clear the Fed needs to tighten financial conditions quickly — and it will — even if the cost is to cause a recession,” he said.

Adam Tooze, who underlines this “dramatic change” in expectations, says he is mainly concerned about the American real estate market. “Mortgage rates have gone from 3% to 6% in just six months. By 2023, a drop in prices is expected. The US real estate sector is the largest form of wealth in the global economy,” he adds. On top of that there is the collapse of the cryptocurrency market, which had already become popular as an investment.

Nor is there good news from China, the EU’s other big trading partner and at the same time its “systemic rival”, in the words of Brussels. that of Beijing covid-zero The policy, based on containment in the face of new epidemics, continues to prevent the end of bottlenecks and the great global traffic jam, adding to soaring inflation. Investment bank Nomura expects the Asian giant to grow by 3.3%, a modest figure given the frantic pace of expansion of the Chinese economy in recent years. And that figure could decline, the company says, if the brick bubble that started with the Evergrande real estate crisis eventually bursts.

However, these are not all the dangers. The world is also waiting for the ECB’s resolution to the dilemma between growth and inflation. The countries of the South accept that the rates are raised, but with great caution so that the recovery does not derail. Those in the north think Frankfurt is too late. “The ECB has not yet admitted that it will have to raise interest rates well into positive territory, above 3% and possibly much higher. This will slow the economy. The war in Ukraine increases the risks of recession. It is frustrating to see that the ECB is still dragging its feet,” laments Charles Wyplosz, professor at the University Institute of Geneva.

However, the southern eurozone, led by Italy, held its breath after witnessing a rise in risk premiums just as the first interest rate hike was announced. The biggest fear: the debt crisis of 2010, which was also the euro crisis. Athanasios Orphanides, now a professor at the business school of the Massachusetts Institute of Technology, was then governor of the Central Bank of Cyprus and member of the board of governors of the ECB. He believes that the problems that hit the euro zone at the time have not yet been resolved. “As the ECB tightens its policy, we could see a greater tightening of monetary conditions in Italy and Spain, for example. This could lead to catastrophic results in these Member States, but the whole of the euro zone will suffer,” he says.

If all of these risks materialize, the big question is how strong the backlash will be. Lorenzo Codogno, a former Italian treasury secretary and professor at the London School of Economics, believes the recession should be short-lived and limited to just a few countries. Also, let’s not forget that this time Europe has an instrument whose deployment has just begun to support investment: a recovery fund of up to 800,000 million.

Edited by Xanthe Holloway