US recession fears cloud global growth outlook

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Manufacturing growth is slowing around the world as China’s COVID-19 curbs and Russia’s invasion of Ukraine disrupt supply chains and keep inflation at its highest in years, while the Growing risk of a US recession poses a new threat to the global economy.

Factory activity gauges released Thursday in Japan, Britain, the euro zone and the United States all softened in June, with US producers reporting the first outright drop in new orders in two years. in the face of collapsing consumer and business confidence.

S&P Global’s flash U.S. composite PMI output index, which tracks the manufacturing and services sectors, fell to 51.2 this month, down from a final reading of 53.6 in May and the pace of growth the slowest in five months. The manufacturing component fell to 52.4, the lowest in nearly two years, from 57 in May and was significantly lower than the estimate of 56 in a Reuters poll of economists.

“Business confidence is now at a level that would typically herald an economic slowdown, adding to recession risk,” said Chris Williamson, chief economist at S&P Global Market Intelligence.

Meanwhile, high prices in the euro zone caused demand for manufactured goods to fall in June at the fastest pace since May 2020 when the coronavirus pandemic took hold, the Purchasing Managers’ Index of S&P Global’s main plant falling to a nearly two-year low.

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“June’s Eurozone PMI surveys showed a further slowdown in the services sector, while production in the manufacturing sector now appears to be falling squarely,” said Jack Allen-Reynolds of Capital Economics.

“With price indices remaining extremely strong, the Eurozone appears to have entered a period of stagflation.”

There is about a one in three chance of a recession in the bloc within 12 months, economists predicted in a Reuters poll released earlier on Thursday. They also said inflation – which hit a record high of 8.1% last month – had yet to peak. [ECILT/EU]

Jerome Powell, chairman of the Federal Reserve, said on Wednesday that the central bank was not trying to cause a recession in the United States to stop inflation, but was fully committed to bringing prices under control, even if it risked causing a economic downturn.

He acknowledged that a recession was “certainly a possibility”.

Inflation continues to be at least three times the Fed’s 2% target and is expected to lead to another 75 basis point interest rate hike next month, according to economists polled by Reuters. [ECILT/US]

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Despite Powell’s comments, a few senior traders have either started predicting a recession as early as this year or advanced their recession calls.

US investment firm PIMCO warned on Wednesday that tighter monetary policy by central banks to tackle persistently high inflation was increasing the risk of recession.

There is a 40% chance of a recession in the United States in the next two years, with a 25% chance of it happening in the coming year, according to a Reuters poll found earlier this month.

“Stagflation, characterized by persistently high inflation, high unemployment and weak demand, has become the dominant risk theme since the end of 1Q22 and a plausible potential risk scenario,” Fitch Ratings said in a published report. this week.

A recent slew of data from around the world has shown that policymakers are walking a tightrope as they try to defuse inflationary pressures without tipping their economies into a deep recession.

U.S. retail sales fell unexpectedly in May and existing home sales fell to their lowest level in two years, a sign of high inflation and rising borrowing costs that were starting to set in. harm demand.

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Britain’s economy contracted unexpectedly in April, adding to fears of a sharp slowdown as businesses complain of rising production costs. Its PMI also showed signs the economy was stalling as high inflation hit new orders and businesses reported levels of concern that normally signal a recession.

There is a 35% chance of a UK recession within 12 months, according to another Reuters poll. [ECILT/GB]

In Asia, South Korea’s exports for the first 10 days of June were down nearly 13% year-on-year, underscoring the heightened risk to the region’s export-driven economies.

As Chinese exporters recorded strong sales in May, helped by the easing of national COVID-19 restrictions, many analysts expect a tougher outlook for the world’s second-largest economy due to the war in Ukraine. and rising raw material costs.

The Japanese manufacturing PMI at Jibun Bank marked its slowest expansion since February.

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