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eToro: Fears of a possible recession are growing. The average mortgage rate has risen the fastest in decades


According to a CNBC poll, 81% of Americans believe there will be a recession in 2022. labor market.

The Romanian economy is also starting to show signs of slowing down, recording a contraction of 0.1% in the last quarter of 2021, the first contraction after the second quarter of 2020, during the isolation from the beginning of the pandemic, reversing the expansion of 0.4% in the third trimester. Romania’s GDP grew by 2.4% in the fourth quarter of 2021, compared to the same period last year, slowing sharply from a 6.9% advance in the previous period.

In an attempt to anticipate a possible recession, a good indicator may be the real estate market. High material prices, combined with rising mortgage interest rates, have begun to have an impact on the US real estate market.

According to Robert Dietz, chief economist at the National Association of Home Builders, the rise in mortgage rates, combined with a significant tightening of the Federal Reserve’s monetary policy, will exacerbate concerns about housing affordability in 2022.

Since the beginning of the year, the average 30-year fixed-rate mortgage rate has risen from 3.1% to 4.67% by the end of March – the fastest rate growth in percentage terms in decades.

Sales of single-family homes in February fell by 6.2% to 823,000 in February 2021. Part of this decline is also due to builders deliberately slowing sales to help offset supply chain delays.

Europe has another problem with the house price index, which has risen by almost 42% compared to 2010, compared to the rent index, which has risen by only about 12%, which makes the recovery in real estate investment take longer and raise questions about the future feasibility of such investments.

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Another concern about a possible recession is the evolution of new orders in the industrial sector. There are reports that manufacturers are preparing for a slowdown in orders. Affected by the silicon chip crisis, Nvidia, AMD and Broadcom flew off the shelves. But a recent report by investment firm Truist lowered the price targets of these companies, telling investors that it had found “concrete evidence to reduce orders”. Other factories around the world are being forced by supply chain problems and restrictions on Covid 19 to slow production.

However, the latest March PMI index for US industry was revised to 58.8, indicating the strongest growth in factory activity in the last six months, amid faster growth in new production and new orders as the demand of domestic and foreign customers has increased. Although production delays increased at a faster pace, companies noticed fewer supply bottlenecks, which allowed for faster production growth. In addition, suppliers’ delivery times have been met for most of January 2021 and to date.

But in Europe the situation is more difficult – last month’s data show that in Germany the PMI index in the industrial sector reached 56.9, indicating the lowest increase in factory activity in the last 18 months, given that the Ukrainian crisis has impacted demand export and led to new pressure from suppliers. New orders have grown at a slower pace in the last three months. We are still above the 50 threshold showing expansion, but it is slowing down rapidly.

This indicates a riskier business environment in Europe, as it is closer to the conflict zone. In the minutes of the ECB meeting in March, published last week, a new word appeared – “slowflation”. “While the war is likely to affect short – term economic growth, annual growth is projected to remain positive even in the severe scenario, indicating” slowflation “rather than” stagflation “in the minutes of the meeting. Slowflation is a term that appeared in the 1990s to describe slower economic growth combined with inflation.

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An interesting phenomenon has begun in China. Market data show that foreign investors sold Chinese shares and bonds worth 38.4 billion yuan ($ 6.04 billion) net in January-March, one of the highest quarterly figures ever recorded. Net inflows of foreign capital continued until February, but reversed in March to a net outflow of 45.1 billion yuan. An unexpected effect of the conflict in Ukraine and subsequent sanctions is that investors are trying to be more cautious about the political environment.

Deutsche Bank was the first bank to predict that “the simultaneous shocks caused by the war in Ukraine and the accelerated growth of already high inflation in the US and Europe will lead to a recession in the US and a growth recession in the euro area over the next two years.” . Despite public beliefs so far, the consensus on Wall Street is that 2022 will not bring a recession, but by 2023 the chances are growing. Markets are looking at the Fed, trying to guess the magnitude of interest rate hikes and looking for signs of the impact they will have on the US economy. But history has shown that it took an average of 25 months from the first interest rate increase to the recession.

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