'A big recession in the making'

LONDON, May 6 (CNBC): The CEOs of several European blue chip companies have told CNBC that they see a significant recession coming down the pike in Europe.
The continent is particularly vulnerable to the fallout from the Russia-Ukraine war, associated economic sanctions and energy supply concerns, and economists have been downgrading growth forecasts for the euro zone in recent weeks.
The euro zone faces concurrent economic shocks from the war in Ukraine and a surge in food and energy prices exacerbated by the conflict, along with a supply shock arising from China's zero-Covid policy. That has prompted concerns about "stagflation" - an environment of low economic growth and high inflation - and eventual recession.
"For sure, we see a big recession in the making, but that's exactly what we see - it's in the making. There is still an overhanging demand because of the Covid crisis we just are about to leave," said Stefan Hartung, CEO of German engineering and technology giant Bosch.
"It's still there and you see it heavily hitting us in China, but you see that in a lot of areas in the world, the demand of consumers has already even been increased in some areas."
In particular, Hartung noted lingering consumer demand for household appliances, power tools and vehicles, but suggested this would dissipate.
"That means for a certain amount of time, this demand will still be there, even while we see the interest increase and we see the pricing increase, but at some point in time, it won't be just a supply crisis, it will also be a demand crisis, and then for sure, we are in a deep recession," he added.
Inflation in the euro zone hit a record high of 7.5% in March. So far, the European Central Bank has remained more dovish than its peers, such as the Bank of England and the U.S. Federal Reserve, both of which have begun hiking interest rates in a bid to rein in inflation.
However, the ECB now expects to conclude net asset purchases under its APP (asset purchase program) in the third quarter, after which it will have room to begin monetary tightening, depending on the economic outlook.
Berenberg Chief Economist Holger Schmieding said in a note Friday that near-term risks to economic growth are tilted to the downside in Europe.
"Worsening Chinese lockdowns and cautious consumer spending in reaction to high energy and food prices could easily cause a temporary contraction in Eurozone GDP in Q2," Schmieding said.
"An immediate embargo on gas imports from Russia (highly unlikely) could turn that into a more serious recession. If the Fed gets it badly wrong and catapults the U.S. straight from boom to bust (unlikely but not fully impossible), such a recession could last well into next year."
Yet Schmieding suggested that the euro zone is likely to enter recession only "if worse came to worst," and that it isn't a base expectation.
Mark Branson, president of German financial regulator BaFin, said any military escalation in Ukraine or further energy supply disruption could pose serious risks to growth in Europe's largest economy, with industrial sectors particularly vulnerable.
"We're already seeing that growth is down to around zero in many jurisdictions, including here, and it's vulnerable. It's also vulnerable from the ongoing Covid-related shocks," he said.
"We've got inflation that's going to need to be tackled, and it's going to need to be tackled now, so that's a cocktail which is difficult for the economy."