US Recession Concerns Darken Outlook For Global Growth – By ASC

Manufacturing growth slowed around the world as China’s COVID-19 embargo and Russia’s invasion of Ukraine disrupted the supply chain and kept inflation at its highest level in several years, while the growing risk of a U.S. recession posed a new threat to the global economy.

Factory activity gauges released on Thursday in Japan, Britain, the eurozone, and the United States all declined in June, with U.S. manufacturers reporting the first direct drop in new orders in two years following declining consumer and business confidence.

The S&P Global US Composite Output PMI Index, which tracks the manufacturing and services sectors, fell to 51.2 this month from a final reading of 53.6 in May and the slowest growth rate in five months. The manufacturing component fell to 52.4, the lowest in nearly two years, from 57 in May and weaker than an estimate of 56 in a Reuters survey of economists.

“Business confidence is now at a level that would normally signal an economic downturn, adding to the risk of a recession,” said Chris Williamson, head of business economics at S&P Global Market Intelligence.

Meanwhile, high prices in the eurozone meant demand for manufactured goods fell in June at the fastest rate since May 2020 when a coronavirus outbreak was raging, with the S&P Global Factory Purchasing Managers Index falling to a nearly two -year low.

“The June eurozone PMI survey showed a further slowdown in the services sector, while production in the manufacturing sector now appears to be falling directly,” said Jack Allen-Reynolds at Capital Economics.

“With the price index remaining very strong, the eurozone appears to have entered a period of stagflation.”

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

Jerome Powell, chairman of the Federal Reserve, said on Wednesday the central bank was not trying to engineer the recession in the United States to stop inflation but was fully committed to controlling prices even if doing so risks a recession.

He acknowledged the recession was “certainly a possibility”.

Inflation continues to run at least three times higher than the Fed’s target level of 2% and it is expected to deliver another 75 basis point interest rate hike next month, according to economists surveyed by Reuters. [ECILT/US]

Despite Powell’s comments, some major traders either started predicting a recession as early as this year or have put forward their recession calls.

US investment firm PIMCO warned on Wednesday that the central bank tightening monetary policy to fight high inflation continued to increase the risk of a recession.

There is a 40% chance of a U.S. recession over the next two years, with a 25% chance for it to happen next year, a Reuters survey found earlier this month.

“Stagflation, characterized by persistently high inflation, high unemployment and weak demand, has been the dominant risk theme since late 1Q22 and a reasonable potential risk scenario,” Fitch Ratings said in a report released this week.

The latest string of data around the world shows policymakers are walking tight as they try to ease inflationary pressures without causing their economies to suffer a severe downturn.

U.S. retail sales suddenly fell in May and existing home sales fell to a two-year low, signs of high inflation and rising borrowing costs began to weigh on demand.

The British economy contracted sharply in April, adding to concerns about a sharp slowdown as companies complained about rising production costs. Its PMI also showed signs of a stagnant economy as high inflation hit new orders and businesses reported levels of concern that typically signal a recession.

There is a 35% chance of a British recession in 12 months, a Reuters survey shows. [ECILT/GB]

In Asia, South Korean exports for the first 10 days of June declined nearly 13% year -on -year, underscoring increased risks to the region’s export -driven economy.

While Chinese exporters enjoyed strong sales in May, helped by easing domestic COVID-19 restrictions, many analysts expect a more challenging outlook for the world’s second-largest economy due to the Ukraine war and rising raw material costs.

Au Jibun Bank’s lightning Japanese Manufacturing PMI marked the slowest expansion since February.

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(This story has not been edited by NDTV staff and is automatically generated from a syndicated feed.)

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