Economic Halloween, or what has scared us over the last year

The last 12 months, economically speaking, were the worst since 2008. Inflation, maintaining a high standard of living, unemployment or gas and electricity prices - these fears accompany us every day. With them, Halloween demons seem to be just plain fun.

More and more popular in Poland, Halloween is the day when we put on masks and dress up as various scary characters. The probable origin of this holiday is the old customs, in which such action was to scare away evil spirits. However, Halloween is a great opportunity to reflect on what has recently scared us the most and what we fear the most. Here, economic fears come to the fore: inflation, maintaining a high standard of living, unemployment, gas and electricity prices. They scare us today more than the best costumes or horror movies.

Energy prices and availability

Since the outbreak of the war in Ukraine, the greatest fear of Poles and Europeans concerns energy carriers, mainly natural gas and electricity. This fear manifests itself on two levels: the first is the fear of their prices and whether the average family can afford to pay several times higher electricity or heating bills. The second is the concern whether they will be available at all and whether we will be able to heat our houses and apartments in winter. This fear is something new for the present generations, because the last time we dealt with such problems in Europe was at the turn of the 40s and 50s.

The response to these fears are the actions of politicians who try to reduce the scale of the increases and ensure access to scarce raw materials. This is the case practically all over Europe, regardless of whether the politicians are more or less populist in power. A common method is surcharges and allowances, as well as freezing the prices of energy carriers. However, as it happens in life, trying to control one fear causes another. Such financial transfers are not indifferent to the market and will increase the scale of inflation.

Inflation, interest rate hikes

When we make our daily purchases, we remind ourselves of another fear: the inflation that haunts us. In Poland it amounts to 17,2 percent. y / y, in the European Union 10,9%, and in the USA 8,4%. We have not had such a level of inflation in Poland for 25 years, and in Europe - even for 40 years. This is a serious burden on household budgets, the more so as wages in Poland are growing slower than inflation.

This means that it causes a decline in the wealth of the society. Inflation, however, is a very common fear - both the poor and the rich fear it. Especially those who have savings and investments, because it reduces the real value of the money accumulated. This is confirmed by various studies, including eToro's quarterly survey "Individual Investor Pulse".

Once accelerated inflation is hard to stop, the main concern of economists today raises the question of how quickly inflation may start to fall in some time. Is it at the same pace as it grew recently, or maybe it will take several or even a dozen or so years to bring down inflation. The response to inflation are interest rate hikes. They are to help fight it, but in such a short period of time, they cause a significant increase in the cost of loans: both those newly taken and those that are already repaid with a variable interest rate.

Stock market decreases

For many people, the last few months on global stock exchanges were a source of fear and stress. During the year, American S & P500 index fell by over 17 percent. There is particularly high volatility in the market right now, and everyone is wondering when the market will stop retreating. However, reaching the bottom will also be the beginning of new gains, and at the same time, it will give rise to new fears: when to sell what we have bought at the bottom. Experienced investors look at it with much greater calm, because they have seen it all before, incl. in 2008/2009 or in 2000.

However, the fears of a global investor are nothing compared to those that could be felt on the Warsaw Stock Exchange last year. WIG20 over the last year has shrunk by more than 37 percent. The Warsaw Stock Exchange was announced several times in the past year as the worst trading floor in the world in terms of results. And various events repeatedly abruptly lowered the valuations of listed companies.

Demons of 2008 ...

These economic fears took a heavy toll on us. The past 12 months have been economically the worst since 2008 (not counting the short-lived collapse associated with the pandemic). However, it's worth noting that the future is not as bad as it seemed a few months ago. Gas prices have started to decline, which is being helped by a moderate winter. Inflation in Poland is approaching a peak (which will probably be above 20%) but then it will inevitably start to decline, in the USA it has already passed its peak.

The series of interest rate increases will most likely end at the beginning of next year at the latest. And stock exchange investors remain moderately optimistic about the fourth quarter and the following months. It may therefore turn out that in a year's time, only a memory will remain after our current fears.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.