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Good morning and welcome to Europe Express.EU leaders are gathering in Brussels today for the first day of their regular summer council, in what could mark at least a partial revival of the bloc’s dormant enlargement policy. We’ll explore what this decision will mean not just for Ukraine and Moldova, which are set to become EU candidate countries, but potentially also for the Balkan countries whose leaders are meeting with their EU counterparts later this morning.Lithuania is enforcing sanctions on the transfer of goods from Russia to the Baltic exclave of Kaliningrad, so we’ll explore why both Vilnius and the European Commission are standing their ground despite retaliatory threats from Moscow.In climate policy news, the European parliament yesterday finalised its negotiating position ahead of talks with member states and the commission on measures including carbon allowance trading and the adoption of a carbon border tax on certain imports from heavy polluting countries.Not everyone’s a winnerIt is being billed as a “geopolitical summit”, in the words of one senior EU diplomat. As EU leaders gather in Brussels today, the central outcome from their meetings is charged with political symbolism given the war raging to the east, write Valentina Pop and Sam Fleming in Brussels. Both Ukraine and Moldova are expected to win EU candidate status — a landmark moment, even if both will have to meet tough conditions before moving to the next stages. This is no small feat, given that just a few years ago, Ukraine was specifically told it had no EU membership perspective and Moldova was barely registering on anyone’s radar in Brussels.Georgia, which also applied for membership within days of the Russian invasion of Ukraine, will still have to pass more reforms before being given candidate status. But leaders will at least give Tbilisi the consolation prize of having its European aspirations acknowledged. Leaders are also making the effort to revive the European perspective for western Balkan nations, though that is difficult to agree upon. The day will kick off with an informal, and potentially “quite heated” session between EU leaders and their six western Balkan counterparts, according to a second EU diplomat. The prospects for Albania and North Macedonia to advance to the next stage on their EU path (the formal start of EU membership talks) briefly lit up yesterday, when one of the opposition leaders in Bulgaria signalled support for that step.But hopes were squashed later in the evening after the Bulgarian prime minister, Kiril Petkov, lost a vote of confidence in the national parliament.Petkov had been in favour of dropping his country’s veto on starting accession talks with North Macedonia, but that decision was fiercely fought over in the Bulgarian parliament, which has now put the country on the path for early elections — the fourth in little over a year.Diplomats and EU officials are not giving up, and will continue to press Sofia to finally unblock Albania and North Macedonia’s forward movement. While some are advocating for decoupling the two, given that Albania is basically held hostage by Bulgaria’s history and education-related issues with North Macedonia, most EU capitals would not favour such a move. “The negative impact of being seen as abandoning North Macedonia would be greater than the positive news of opening talks with Albania,” said the second senior EU diplomat. Leaders in the evening will also discuss the ideas put forward by France’s Emmanuel Macron and European Council president Charles Michel about a new structure, called the “European political community” that in addition to aspiring EU members could include other non-EU countries that do not want to join, such as the UK or Switzerland.“It’s a first discussion: it’s not very concrete. One thing that is clear to everyone is that this structure is not replacing the enlargement process,” the diplomat said. Kaliningrad guidanceEU capitals are becoming increasingly worried about the escalating feud with Russia over its shipments of goods to the Baltic exclave of Kaliningrad, write Sam Fleming and Henry Foy in Brussels.This week Lithuania began implementing sanctions that ban the transit of certain goods through EU states. The checks have triggered a furious response from Moscow, which has accused the EU of starting a “blockade” of the Russian territory of Kaliningrad and has threatened Lithuania with serious consequences. Some EU officials and diplomats questioned the breadth and intensity of Lithuania’s efforts to check Russian trains, people briefed on the discussions told Europe Express. Others questioned the wisdom of clamping down on movements of goods between two parts of Russia — even if the products move through an EU territory. The European Commission has made it clear it believes that Lithuania is correctly executing the sanctions that were unanimously agreed by the 27 member states. But the commission, which drafted the measures, is planning to issue guidance on the topic as soon as today, giving it the opportunity to clarify how tight the checks need to be in practice. Vilnius has additionally asked for the issue to be formally discussed in the summit, but some capitals have pushed back against that initiative, for fear of further inflaming tensions over the topic. Lithuania denies it has imposed any kind of “blockade” on Russian goods, saying “the transit of passengers and non-sanctioned goods to and from the Kaliningrad region through Lithuania continues uninterrupted”.“Lithuania is complying with the sanctions imposed by the EU on Russia for its aggression and war against Ukraine,” Prime Minister Ingrida Šimonytė said yesterday. The EU sanctions regime “means that Lithuania has to apply additional checks on road and rail transit”, agreed EU commission spokesman Eric Mamer. “Of course, these checks are focused, proportionate and effective. They will be based on smart risk management, to avoid sanctions evasion while allowing free transit.” Mamer added that the commission was in touch with the Lithuanian authorities and that it would provide “additional guidance as we go along”.The railway line across Lithuania and Belarus is Russia’s primary supply link to Kaliningrad. Trade in key products such as iron and steel has already been hit by the EU measures. A wider range of Russian goods such as cement will be affected as the grace periods for later rounds of sanctions lapse.While there may be scope to narrow the focus of border checks being done by Lithuania, some diplomats insisted they were not expecting the overall scope of the sanctions to be changed. “The assumption is that the commission and its legal service have studied the matter before actually coming out with it,” said one EU diplomat. “Those goods that are sanctioned should not transit through EU territory.”Chart du jour: Small free traders

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Read more here about a paradox in trade policy: the countries that matter most in trade are the ones to which trade matters least. Smaller countries are more dependent on trade than the US or big EU countries, which set the tone on global trade rules.Back on trackIt has taken somewhat longer than expected, but the EU parliament yesterday approved its negotiating position on the bloc’s flagship climate policy, writes Alice Hancock in London.Earlier this month, an unlikely coalition of socialists, greens and far right lawmakers rejected revisions to the EU’s emissions trading system, which allows polluters to trade permits for carbon output. They also rejected the introduction of a carbon border tax known as CBAM, designed to charge importers for their carbon emissions.The dramatic rebellion by MEPs at parliament’s plenary pushed the proposals back to the committee stage where lawmakers worked (almost) through the night last week to agree a compromise deal, which was retabled yesterday.One element of the compromise — and a key sticking point — means that the carbon border tax will not start to be phased in until 2027 — later than 2025 as originally proposed by parliament’s environment committee, but one year earlier than the commission had suggested. Esther de Lange, vice-president of the European People’s party, said that the group was “happy with the current compromise” and that it was “a reasonable deal that keeps the same level of climate ambition and provides breathing space for EU industry”.Bas Eickhout, a member of the European Green party, said: “It’s good to see that our hard ‘no’ two weeks ago, together with other progressive parties, on the watered down climate plans resulted in a lot of pressure on other parties to come up with an improved proposal”.He voiced concerns, however, that parts of the deal on CBAM still needed to be improved to be compliant with World Trade Organization rules.What to watch today EU leaders meet Western Balkan leaders in Brussels before reconvening for the European CouncilPresident of Zambia, Hakainde Hichilema, speaks in European parliamentNotable, Quotable

Split stars: Italy’s Five Star Movement, the largest party in Mario Draghi’s national unity government, is splitting after its leaders fell out over Russia’s invasion of Ukraine and Rome’s provision of military aid to Kyiv. Drone attack: A fire broke out at an oil refinery in southern Russia’s Rostov region after a drone attack, state media said, in what military experts suggest could be part of apparent Ukraine-backed strikes behind enemy lines. More

The FT’s Money Clinic podcast will be making a series of episodes tracking how the cost of living crisis is affecting people aged 20-40. You could be . . . Worried about the rising cost of rent and energy billsGrappling with the high cost of childcareTrying to achieve a financial milestone, such as buying a houseThinking about moving jobs to increase your paySelf-employed and worried about the future for you and your business.Presenter Claer Barrett is especially keen to talk to people living and working in the UK who regularly send money to family based overseas.Guests on the podcast are only ever identified by their first names. We can record you online, or you can travel into the FT’s London studio.The time commitment required would be approximately one hour a month over a 5-6 month period.If that sounds like something you’d like to do, send a few lines about yourself and your situation to [email protected] marking your email “podcast” and please make sure you include a contact telephone number. More

Ezra Ngala, an informal construction worker, is struggling to make ends meet in a slum in Kenya’s capital, Nairobi. “I am trying to survive,” he says while explaining that he cannot feed his wife and four-year-old son. “For the past few months there has been a surge of people like myself going hungry. The government says that the war in Ukraine is the cause of all this.”Steep rises in international food and fuel prices since the Russian invasion of Ukraine have left millions more Africans facing hunger and food insecurity this year, the UN, local politicians and charities have warned. The price rises have compounded economic problems caused by the coronavirus pandemic, sparking concerns of unrest in the hardest-hit countries. Swaths of Africa face an “unprecedented food emergency” this year, in part because of the war in Ukraine, the World Food Programme has said. “The conflict in Ukraine [sparked a] global price hike of fuel, fertilisers and also edible oil and sugar and wheat particularly. This is bringing significant shocks to the system,” Ahmed Shide, Ethiopia’s finance minister told the Financial Times. In an area stretching from northern Kenya to Somalia and large parts of Ethiopia, up to 20mn people could go hungry in 2022, the UN’s Food & Agriculture Organization has said, due to the worst drought in four decades, exacerbated by the fallout from the war in Ukraine. More than 40mn people in the Sahel and west Africa this year face acute food insecurity, according to the FAO, up from 10.8mn people three years ago. Before the war, Russia and Ukraine accounted for a double-digit share of wheat imports in more than 20 sub-Saharan African countries, including Madagascar, Cameroon, Uganda and Nigeria, according to the FAO. Eritrea relies on those two countries for all of its wheat imports. Even those countries not reliant on imports from Russia and Ukraine have been hit by rising prices. Responding to the trend, the World Bank on Wednesday said it had approved a $2.3bn programme to help countries in eastern and southern Africa tackle food insecurity. The IMF forecasts that consumer price rises in sub-Saharan Africa will rise by 12.2 per cent this year — the highest rate in almost two decades. In Ethiopia, food prices rose 42.9 per cent in April on the same month a year earlier. There are concerns that higher food prices could fuel unrest in poorer countries, where food counts for a higher part of daily spending than in developed countries. During the 2007-08 food crisis, which was caused by a spike in energy prices and droughts in crop-producing regions, about 40 countries faced social unrest. More than a third of those countries were on the African continent. Even before the Russian invasion in late February, the pandemic had already hit economic growth on the continent. “Africa was already struggling with food insecurity,” said Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa. “These African countries had diminished ability to cushion their population from food price fluctuations.”There have already been some signs of unrest. Landlocked Chad declared a food “emergency” earlier this month. In Uganda, six activists were arrested for protesting against higher food prices at the end of May, according to Amnesty International. The rising cost of food has since May spurred street protests in Nairobi under the hashtags #LowerFoodPrices and #Njaa-Revolution — meaning “hunger” revolution in Swahili. “People are hungry, the reality is that people cannot afford to keep up with these rising prices. You wake up every day, and prices are rising,” said Lewis Maghanga, a local campaigner on the cost of living.Jackline Mueni, who bakes cakes for weddings and birthdays in Nairobi, is feeling the pinch. “Things are just getting bad,” she said, adding that in the three years she had been in business this was by far the worst time. “In the last three months, food prices have really rocketed.”In May, the price of edible oils jumped more than 45 per cent from a year ago in Kenya, while flour increased 28 per cent, according to the World Bank. “This is the worst time ever. I was very comfortably making money, recovering expenses and making a profit. I was selling an average of five cakes a day. Now, one or two, if I am lucky,” said Mueni.Even Nigeria, an oil producer and a member of Opec, has been hit by international food and fuel prices. Africa’s most populous country exports crude oil but relies on fuel imports. It is also a large food importer, especially of grains. The price of bread in Lagos has risen from 300 naira ($0.72) before the pandemic to 700 naira this year, according to Chibundu Emeka Onyenacho, analyst at emerging markets bank Renaissance Capital.

“If you’ve suddenly moved to 700 [naira for a loaf of sliced bread], that’s putting pressure on anyone that is being paid the [monthly] minimum wage of 30,000 naira,” said Onyenacho. He added that the price of wheat flour meant that in rural areas, people blended it with flour made from cassava, a cheap root vegetable, because they were “willing to compromise” on quality to cut the cost of products eaten daily, such as bread. Back in Kenya, rising fuel prices mean construction worker Ngala spends roughly half his salary on fuel prices. As a result, some dishes have become unaffordable. “We cannot afford basic things like cooking oil and maize flour,” he said, the latter to make local staple ugali, a cooked maize-flour dough. “There are people who can’t afford even one meal a day.”

Video: Can we avoid climate-related food shocks? | FT Food Revolution More

A year ago, inflation appeared under control. Published annual consumer price rises stood at 2 per cent in the eurozone and 2.1 per cent for the UK in May 2021. The 5 per cent figure for the US was higher than normal, but the Federal Reserve dismissed concerns, saying price rises reflected “transitory factors” with chair Jay Powell highlighting lumber and used car prices that were temporarily high and airline and hotel costs that were just climbing back to normal. What has happened since has surprised all the main advanced economy central banks. The latest published inflation rates stand at 8.6 per cent in the US, 8.1 per cent in the eurozone and 9.1 per cent in the UK. Instead of always blaming something out of their control, central bankers are now taking action. We should therefore use this moment to take stock. What were the mistakes made in thinking over the past year? And what does this mean for policy and the economic outlook?Fundamentally, we have rediscovered that resource constraints are real and they matter. With unemployment at multi-decade lows in North America and Europe, there was less scope than after the global financial crisis for households, government or companies to increase spending without generating significant inflationary pressure. Sometimes, of course, resource constraints have also been caused by supply chain bottlenecks, but both represent demand exceeding supply and both are inflationary.Instead of focusing closely on the constraints, politicians and central bankers placed too much emphasis on the data from after the 2008-09 global financial crisis showing unemployment changes had little impact on wages or prices. Inflation had been low and steady both when joblessness was high and when it came down. Policymakers misdiagnosed this “flat Phillips curve” as a regularity, and that led to complacency. The thinking was that inflation was dead and there were few risks in running a high-pressure economy. We now know this was dangerously wrong.Central bankers bear particular responsibility in this messy tale. For the past two decades, they convinced themselves the public believed them to be such wonderful price controllers that they could sit back and relax. No company would seek to push prices higher and no worker would seek inflation-busting pay rises because they knew it would be defeated by the central bank. They believed their credibility was rock solid, so low and stable inflation was a self-fulfilling prophesy. That theory has failed and they are now in a fight to regain public trust. It is not surprising, for example, that net satisfaction with the Bank of England’s inflation management has fallen to its lowest level on record.The result of these analytical failings and complacency has been the recent rapid rises in interest rates, designed to show central banks are serious about defeating inflation. But this merely brings us to the next problem. All the main models used for managing inflation have been calibrated during a period of price stability and tell us very little about how far to tighten monetary policy when you’ve lost control. Some of the rise in inflation is still temporary, but much will need to be squeezed from economies without anyone knowing exactly how much pressure to apply. This means the dangers of excessive tightening are as great as continuing to do too little, too late.In such a difficult world, no one should rule out recessions in the year ahead. The Fed is probably correct to raise interest rates hard, but the truth is that we really don’t know. Further mistakes in monetary policy are highly likely and we should expect reversals in policy as central banks try to find the right response to a problem they did not think could happen. [email protected] More

Your browser does not support playing this file but you can still download the MP3 file to play locally.US stocks stay fairly flat after Fed Chair Jerome Powell testifies in Congress, a Ukrainian-made drone hits an oil refinery in Russia, and the International Energy Agency says investing $25 billion annually could lead to universal electricity access in Africa by the end of the decade. Mentioned in this podcast:Jay Powell warns US recession is ‘certainly a possibility’‘Kamikaze’ drone strike hits oil refinery in southern RussiaAfrica needs $25bn a year of investment to boost energy provision, says IEA chiefThe FT News Briefing is produced by Fiona Symon, Sonja Hutson and Marc Filippino. The show’s editor is Jess Smith. Additional help by Peter Barber, Michael Lello, David da Silva and Gavin Kallmann. The show’s theme song is by Metaphor Music. Topher Forhecz is the FT’s executive producer. The FT’s global head of audio is Cheryl Brumley.Read a transcript of this episode on FT.com See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More

Fed Chairman Jerome Powell said Wednesday that the central bank is “strongly committed” to bringing down inflation and can do so with its monetary policy tools.
That means higher interest rates until “compelling evidence” emerges that inflation is coming down.

Federal Reserve Chairman Jerome Powell told congressional lawmakers Wednesday that the central bank is determined to bring down inflation and has the ability to make that happen.
“At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” the Fed chief said in remarks for the Senate Banking Committee. “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”

Along with expressing resolve on inflation, Powell said economic conditions are generally favorable, with a strong labor market and persistently high demand.
But Sen. Elizabeth Warren, D-Mass., warned Powell that the continued rate hikes could “tip this economy into recession” without stopping inflation.
“You know what’s worse than high inflation and low unemployment is high inflation and a recession with millions of people out of work, and I hope you’ll reconsider that before you drive the economy off a cliff,” she said.
Though Powell said he believes the economy is strong now, he acknowledged a recession could happen.

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“It’s certainly a possibility,” he said. “It’s not our intended outcome at all, but it’s certainly a possibility, and frankly the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2% inflation and still a strong labor market.”

Achieving a “soft landing,” in which policy tightens without severe economic circumstances such as a recession, will be difficult, he added.
“It is our goal. It is going to be very challenging. It has been made significantly more challenging by the events of the last few months, thinking here of the war and commodities prices and further problems with supply chains.” Powell said. “The question of whether we’re able to accomplish that is going to depend to some extent on factors that we don’t control.”

Jerome Powell, chairman of the US Federal Reserve, arrives to a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, D.C., U.S., on Wednesday, June 22, 2022.
Ting Shen | Bloomberg | Getty Images

Powell insisted that inflation is running too hot and needs to come down. The consumer price index in May increased 8.6% over the past year, the highest level since December 1981.
“Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2%,” Powell said. “We anticipate that ongoing rate increases will be appropriate; the pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy.”
He noted that the war in Ukraine and Covid-linked shutdowns in China are adding to inflation pressures, and added that the problem is not unique to the U.S. but is affecting many global economies.
Powell’s remarks are part of a congressionally mandated semiannual report on monetary policy – more commonly known in markets as the Humphrey Hawkins report and testimony, for the act which mandated them.
This is an especially delicate moment for Fed policy.
Over its past three meetings, the central bank has raised rates a cumulative 150 basis points – 1.5 percentage points – in an effort to tackle inflation that is running at its fastest annual pace in more than 40 years.
The 75 basis point increase at last week’s Federal Open Market Committee meeting marked the biggest single hike since 1994. Powell said he sees rates rising to a “moderately restrictive level.”
Republican senators pressed Powell to clamp down on inflation, and asked whether White House policies such as regulations on the energy industry are intensifying price pressures.
“Inflation’s hitting my people so hard they’re coughing up bones,” said Sen. John Kennedy, R-La.
“We got a hell of a mess right now,” Kennedy added. “You’re the most powerful man in the United States, maybe in the world.”

Powell has stressed that he thinks tighter monetary policy will be an effective tool against inflation, and has said he thinks the economy is well positioned to handle higher rates. However, he also told Warren that higher rates won’t do much to lower soaring food and gasoline costs.
Cracks have been showing in the economy this year that indicate the higher rates are coming as the economy already is slowing.
Gross domestic product declined at a 1.5% annualized pace in the first quarter and is on pace to be flat in the second quarter, according to the Atlanta Fed. Housing sales have been plunging and there even have been some signs that the jobs market is slowly decelerating at a time when inflation-adjusted wages have fallen 3% over the past year.
Despite the economic wobbles, Powell and his fellow policymakers have indicated the rate hikes will continue. Projections released at the meeting last week point to the Fed’s benchmark short-term borrowing rate rising to 3.4% by the end of this year, from its current targeted range of 1.5%-1.75%.
Correction: The Fed’s benchmark short-term borrowing rate is currently in a targeted range of 1.5%-1.75%. An earlier version misstated the range.

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US president Joe Biden expects G7 leaders to debate steps to “stabilise global energy markets” as Washington seeks more co-operation to contain the high commodity prices weighing on the global economy.A senior Biden administration official told reporters on Wednesday that the US would announce a “concrete set of proposals” to raise economic pressure on Russia over its war in Ukraine, hinting at a possible sanctions package when G7 leaders gather in Germany this weekend.The US also expects energy, the cost of which has soared since the war began in February as countries scrambled to reduce their dependence on Russian imports, to be “very much at the heart of the discussions”, the official added.“[We] expect [G7 leaders] to speak to how can we take steps that further reduce Russia’s energy revenues, and do so in a way that stabilises global energy markets and lessens the disruptions and pressures that we’ve seen,” the senior Biden administration official said.The US has banned the import of Russian energy and supported the EU’s efforts to curb its own dependence on the country’s oil and gas. But American officials are concerned that some of the measures, including an EU ban on insuring Russian oil cargoes, could be counterproductive, leading to sharp price increases that fill Moscow’s coffers and create economic and political spillovers in the west.The US has been discussing possible solutions with the EU and G7 nations, such as price caps and tariffs on Russian oil, but there has been no agreement on any new measures. Biden has been focused on energy prices domestically, including a call on Wednesday for Congress to suspend petrol taxes for three months.Biden’s trip to the G7, to be held at Schloss Elmau in the Bavarian Alps, will begin with a bilateral meeting between the US president and Olaf Scholz, the German chancellor and host of the gathering. Volodymyr Zelenskyy, Ukraine’s president, is also expected to speak to the group virtually.Senior US officials said food security would also be high on the agenda, given price rises and supply chain crunches, as well as enhanced co-operation in the approach to China.The G7 meeting comes ahead of a Nato summit in Madrid next week, where the transatlantic military alliance is due to endorse a new “strategic concept”, a document outlining its mission that was last updated in 2010. For the first time, the document will address how the alliance views China’s efforts to extend its military reach.“Russia obviously continues to be the most serious and immediate threat to the alliance, but the strategic concept will also address the multi-faceted and longer-term challenges posed by the [People’s Republic of China] to Euro-Atlantic security,” a senior administration official said.

The Nato summit will include leaders from the Asia-Pacific region for the first time, including from South Korea, Japan, New Zealand and Australia, aimed at highlighting the alliance’s long-term focus on China.There will also be an announcement on new force commitments “to strengthen Nato’s defence and deterrent posture”, the official said. The US has about 100,000 troops in Europe, up from 70,000 before Russia’s invasion of Ukraine. Nato has 40,000 troops in eastern Europe under its direct command.Biden administration officials declined to say whether they expected progress on efforts to assuage Turkey’s concerns with Finland and Sweden’s applications to join Nato, but noted that US secretary of state Antony Blinken and national security adviser Jake Sullivan spoke with their Turkish counterparts in recent days to try to make progress. More

BENGALURU (Reuters) – The European Central Bank will raise its deposit rate above zero for the first time in a decade in September, according to most economists polled by Reuters, who expect it to be at least 50 basis points higher than previously anticipated by year-end.While economists say euro zone inflation is yet to peak the ECB has given itself some room to catch up with its global peers, who are rapidly hiking rates to neutral, by planning a new instrument to limit the divergence in the bloc’s bond yields.The June 15-22 poll showed all but two of the 55 economists expected the ECB to deliver a quarter-point raise on July 21 to -0.25%. Two expected it to hike by 50 basis points, compared to none in the last poll.A strong majority of 91% or 50 of 55 economists expected the Bank to hike its policy rate by 50 basis points in September, taking the deposit rate out of negative territory to 0.25%.Last month forecasters were expecting the ECB to wait until the fourth quarter to bring the deposit rate, currently -0.50%, to positive territory.About 60% or 33 of 55 economists saw another 25 basis point hike in October and about 85% or 47 of 55 expected the same rise in December, bringing the deposit rate to 0.75% by end-year.But some forecasts for where it would be by end-December were as high as 1.25%, underscoring the possibility of bigger moves. “The ECB is engaging in a dash to neutral to stem the rise in underlying inflationary pressures … Risks to the near-term outlook are skewed towards a faster increase,” said Paul Hollingsworth of BNP Paribas (OTC:BNPQY).”Not least because of likely upside surprises from inflation, but also because the presence of a backstop facility assuages concerns to some extent about potential spillovers to peripheral spreads.”RECESSION?The bank’s neutral deposit rate is within 1.00% to 1.75%, the poll of a smaller sample showed, and it is seen being raised to within that range next year.The poll predicted 25 basis point hikes in the first, second and third quarters next year, pushing the deposit rate to 1.50%, within the terminal rate range of 1.25%-1.50%.”We expect weakness in growth to become clearer in the coming months, which should keep the ECB cautious … A modest recession is now our baseline projection,” said Bas van Geffen of Rabobank.”A recession will cause the ECB to halt its hiking cycle, but if inflation or expectations show no signs of abating, the ECB could be forced to continue regardless of such a downturn.”Economists replying to an extra question said there was about a one-in-three chance of recession within a year, slightly higher than in the last poll. Only two respondents had two consecutive quarters of contraction in their forecasts, the technical definition of recession.The economy was expected to grow 2.6% on average during 2022 and then expand 1.8% next year, median forecasts of about 70 economists showed.Over 70% or 25 of 34 economists said in response to an extra question that euro zone inflation was yet to peak. Twenty said it would happen in the third quarter, four said this quarter and one said in the fourth quarter.Inflation, which hit a record high of high of 8.1% last month, is set to average 8.3% next quarter – more than four times the ECB’s 2.0% target. It is then seen easing gradually, but will not be near target until the tail end of 2023. (For other stories from the Reuters global economic poll:) More