FirstFT: Pan-Atlantic recession ‘increasingly likely’, warn economists

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The risks of the US and Europe sliding into recession have risen sharply, economists have warned ahead of the G7 summit that begins on Sunday.

Economists on both sides of the Atlantic told the Financial Times they had become increasingly pessimistic after the Federal Reserve’s jumbo rate rise to counter soaring inflation, and as concerns mounted over the security of European gas supplies this winter as Russia reduces exports.

Holger Schmieding, chief economist at Berenberg Bank, said the balance had “tipped” in favour of an economic contraction next year in the US and Europe. “What used to be a rising risk has now turned into the base case.”

Goldman Sachs doubled the risk of the US entering a recession this year from 15 per cent to 30 per cent, with a 48 per cent probability of a recession over a two-year horizon in the wake of the Fed’s first 75 basis point rise since 1994.

How concerned are you about a recession? Why? Tell me what you think at firstft@ft.com. Thanks for reading FirstFT Europe/Africa. Here is the rest of the day’s news — Jennifer

Five more stories in the news

1. Ukraine and Moldova get EU candidate status European leaders agreed at a summit yesterday to make the countries candidates to join the bloc, a historic move taken in record time in response to Vladimir Putin’s invasion of Ukraine.

• Related read: The EU’s top diplomat has insisted the bloc has no intention of blocking lawful transport of Russian goods to Kaliningrad through Lithuania. The head of Germany’s RWE, meanwhile, warned EU solidarity will come under severe strain this winter if Russian gas supplies are cut off.

• The FT View: Russia is tightening its natural gas squeeze on Europe, but it is high time EU countries speed up the transition to renewables.

2. World’s biggest bacteria discovered Thiomargarita magnifica, a gigantic bacteria 50 times larger than any bacterial species previously known to science, has been discovered in a Caribbean mangrove swamp. “It would be like a human encountering another human as tall as Mount Everest,” said the lead author of a paper describing the new bacterium.

3. US banks pass stress test The Federal Reserve yesterday gave passing grades to all 33 of the country’s biggest banks in annual stress tests, which gauged each lender’s ability to weather a severe economic downturn.

4. UK explores 5% public sector pay rise Facing an escalating cost of living crisis and widespread strikes, ministers increasingly think it is untenable to hold down public sector pay deals — notably for nurses and teachers — in the 2 to 3 per cent range they have been targeting, according to government insiders.

5. Deutsche Bank chief waives 1.4% of bonus Christian Sewing and his top team are waiving a tiny fraction of their 2021 bonuses, in a rare move intended to show management is bearing some blame for the use of unapproved messaging applications at Germany’s largest bank.

The days ahead

UK by-election results Conservatives are braced to lose two seats in parliamentary by-elections, Wakefield as well as Tiverton and Honiton, in what could prompt a renewed backlash against Boris Johnson.

Economic indicators Germany’s monthly Ifo business confidence index is out, while the UK has May retail sales and Bank of England chief economist Huw Pill addresses a conference on “Inflation and Debt — Challenges for Monetary Policy after Covid-19”. Spain publishes final first-quarter gross domestic product data.

Transport for London funding Tomorrow is the deadline for the UK to extend funding for the capital’s Underground and bus network operator.

G7 summit The leaders of seven of the world’s advanced economies convene for three days in the Bavarian Alps from Sunday, with discussions expected to focus on how to proceed with sanctions against Russia. (Reuters)

What else we’re reading

Fintechs face reckoning A wave of fintech companies rode successive funding rounds to ever-higher valuations over the past five years. But as central banks raise rates to fight inflation, the sector is coming to terms with a world in which expansion can no longer be fuelled by cheap money and business models must be demonstrated by profits.

Pringles’ secret recipe When Kellogg announced plans to break itself into three separate companies this week, it did not place its biggest bet on Corn Flakes, instead emphasising the prospects of savoury snacks, led by its inimitable brand of processed crisps. John Gapper asks, how are Pringles still growing half a century later?

The world that decides what porn you see The de facto regulator of the adult industry isn’t a government, international convention or the business itself. It is Mastercard and Visa. The payments companies wield this power uncomfortably, relying on a cadre of satraps to make occasionally bizarre distinctions, such as the conditions of acceptable vampire sex.

Your phone’s notification settings and the meaning of life It is absurd how surprising it is that one feels much calmer after turning off phone notifications. But it is a warning to us all. It is easy to sleepwalk into a state of chronic stress and distraction without considering that things could be different, writes Tim Harford.

Revlon has become a meme stock Revlon shares have zoomed from about $1 a share to $8 — less than a week after the company filed for bankruptcy protection. But don’t expect a resurgence in its fortunes reminiscent of car hire company Hertz, writes Sujeet Indap.

Books

Are you looking for a summer read? Here are Gideon Rachman’s best mid-year politics books, from Barbara F Walter’s How Civil Wars Start: And How to Stop Them to Henry Kissinger’s Leadership: Six Studies in World Strategy.