US recession threatens dark outlook for global growth

LONDON / TOKYO: Production growth from Asia to Europe is slowing as supply chain is disrupted by China’s Covid-19 controls and Russia’s invasion of Ukraine, while the growing risk of a recession in the United States poses a new threat to the global economy.
Higher prices in the euro zone mean that demand for manufactured goods fell in June at the fastest rate since May 2020 when S&P Global’s headline Factory Purchasing Managers’ Index (PMI) hit an almost two-year low. 54.6 to 52.0.
The Reuters poll predicted a more modest decline to 53.9 and the index moved closer to the 50 mark, separating growth from the contraction.
Jack Allen-Reynolds, in Capital Economics, said: “The Eurozone PMI surveys in June showed a further downturn in the services sector, while manufacturing output now appears to be declining sharply.”
“With price indicators remaining extremely strong, the euro zone seems to have entered a period of stagflation.”
In a Reuters poll published earlier on Thursday, economists predicted that the bloc would have one of three possible downturns in 12 months. They also said that inflation – which reached a record high of 8.1% last month – was still at an all-time high.
Federal Reserve Chairman Jerome Powell said Wednesday that the central bank is not trying to engineer a recession in the United States to stem inflation but is fully committed to controlling prices even if doing so risks an economic downturn.
He acknowledged that the recession was “definitely a possibility”.
Inflation continues to run at least three times higher than the Fed’s target level of 2% and is expected to raise interest rates by another 75 basis points next month, according to economists polled by Reuters.
Despite Powell’s comments, some primary dealers have either started predicting a recession earlier this year or have moved forward with their bearish call.
The US investment firm PIMCO warned on Wednesday that the risk of a recession has increased as central banks tighten monetary policy to combat persistently high inflation.
40% probability of US recession In the next two years, with a 25% chance of it happening next year, a Reuters poll earlier this month found.
“The global macroeconomic outlook has deteriorated physically since the end of 2021,” said Fitch Ratings, which declined this year. Global growth Outlook in June rose to 2.9% from 3.5% in March.
“Stagflation, which is characterized by persistently high inflation, high unemployment and weak demand, has become a dominant risk theme since the end of 1Q22 and is a potential risk scenario,” it said in a report released this week.
Globally, recent data shows that policymakers are trying to reduce inflationary pressures without dragging their economies into recession.
U.S. retail sales fell sharply in May, and current home sales fell to a two-year low, with higher inflation and rising borrowing costs beginning to hurt demand.
Britain’s economy contracted unexpectedly in April, with companies complaining of rising production costs, adding to fears of a sharp recession. Its PMI also showed signs that high inflation was holding the economy in check as new orders hit and businesses reported levels of concern that generally indicate a recession.
There is a 35% chance of a British recession within 12 months, other Reuters polls show.
In Asia, South Korea’s exports fell about 13% year-on-year for the first 10 days of June, underscoring the high risk for the region’s export-driven economies.
While Chinese exporters enjoyed solid sales in May, which helped ease 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 Flash Japan Manufacturing PMI fell to 52.7 in May from 53.3 in May, marking the slowest expansion since February.

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