Central banks, including the Romanian one, raised reference interest rates. Money became more expensive. The effect is also noticeable in the capital market, where there are not so many listings, as well as in the activities of investment funds.

Representatives of managers do not really want to talk about it officially, but disinvestment, as they like to say, is happening in their funds.

Part of the money goes to state proposals to Fidelis. Another small part went to banks, where interest rates increased (also below inflation, but anything is better than nothing). Many were spooked by the volatility of bond funds associated with rising interest rates and preferred to take losses. Also, some preferred to stay in cash until they see what happens.

The fact that we have an increase in the value of money directly affects companies. They can no longer afford to borrow money for various investments or for working capital, as before, and this is affecting their business, especially as the electricity and gas bills are getting bigger and bigger. Essentially, in a desire to remain competitive or remain in the market until the end of this period, some are giving up some or all of their profits.

Romanian companies have already begun to feel the impact of energy prices and interest rates. The next thing that could happen is the rise in unemployment. This is likely to be felt first in manufacturing, where companies already have rising electricity bills. When they start to suspend or close, the wave of unemployment will have waves.

Bohdan Nichishoyu from Coface recently told a story that now, although there is fear of what will happen, people are now still happy to be employed and receive their salary.

The economy is heavily dependent on consumption, and rising unemployment will hit this engine hard.

Also, let’s not forget that there is an IRCC increase coming soon that will affect many of our retail customers. They will be more careful about what they buy.

What we can see in the US will affect the whole world

Ray Dalio posted an article on LinkedIn titled: It All Starts With Inflation: How Inflation, Interest Rates, Markets, and Growth Interact, and What This Means for What’s Next.

He estimates, citing the US, that a rate hike to around 4.5% would have a roughly 20% negative impact on equities (on average, though more for long-term assets and less for short-term assets) and a roughly 10% negative impact from reduced earnings.

When people lose money, they become cautious, and lenders are more cautious about lending, so they spend less. He estimated that significant economic contraction would be needed, but that it would take some time because cash and wealth levels are relatively high and are being used to support spending until they run out. Now we see it happening.

What is happening in the US affects us as well. As it happened during the previous crisis of 2008.

All eyes are on the Fed this week as it is set to make a key interest rate decision. Moody’s said in a note that the Fed could face a so-called “Hobson’s choice”: push the economy into a mild recession to curb inflation, or wait and trigger a deeper recession, as a stagflation scenario is possible next year if the Fed is not aggressive enough .

Read also: How to avoid your own recession

However, it is good to prepare for a recession.

The hypothesis of a global recession was also put forward by the World Bank and rating agencies.

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