The outlook for the global economy is deepening as inflation bites

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It is increasingly likely that the global economy is headed for a severe recession, as the highest inflation in a generation prompts central banks to aggressively reverse the ultra-lax monetary policy adopted during the pandemic to support growth Friday, the data showed. ,

Business activity in the United States, the world’s largest economy, contracted this month for the first time in nearly two years. Activity in the euro area declined for the first time in more than a year, and growth in the UK hit an 11-month low, a survey of purchasing managers showed on Friday.

And with more dominoes expected to fall, the Japanese government is expected to sharply cut its forecast for domestic growth.

Meanwhile, China’s strict COVID-19 lockdown and Russia’s invasion of Ukraine further disrupted global supply chains that had yet to recover from the pandemic.

In the US, the PMI decline was the fourth in a row, driven by weakness in the services sector, which contracted enough to offset moderate industrial growth.

With readings below 50 indicating that business activity has withdrawn, the report will fuel debate over whether the US economy is back – or near – accelerating from the recession in early 2020 After a rebound from, at the beginning of the pandemic.

“Early July PMI figures point to a worrying decline in the economy,” S&P chief business economist Chris Williamson said in a statement. “Except months after the pandemic lockdown, amid the global financial crisis, production is falling at a rate not seen since 2009.”

In the euro area, business activity unexpectedly contracted this month due to a sharp slowdown in manufacturing and a near stagnation in the services sector, as rising costs prompted consumers to cut spending.

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Eurozone companies continue to report rising inflationary pressures and accelerating wage growth, the European Central Bank (ECB) said on Friday, based on a survey of 71 large companies, even as the overall outlook for growth has become increasingly obscure.

Official data showed inflation in the currency bloc peaked at 8.6% last month, and on Thursday the ECB raised interest rates higher than expected, confirming that concerns over runaway inflation now outweigh fears about growth. Is. ,

The Federal Reserve, which is battling with the highest inflation in 40 years, expects another sharp 75 basis points hike in interest rate at its meeting next week.

A Reuters poll showed a 40% chance of a US recession next year and a 50% chance within two years, a significant change from the June poll.

China and Japan remain exceptions in loosening monetary policy, a sign that their economies – the world’s second and third largest – lack the strength to compensate for weaknesses elsewhere.

China slow

Concerns over a global slowdown are casting a shadow over Asia’s recovery prospects, with increased manufacturing activity in Japan and Australia putting pressure on policymakers to continue supporting their economies as they tighten monetary policy to fight inflation. Make it tough

China’s economic growth slowed sharply in the second quarter, hit by widespread COVID-19 lockdowns and pointing to pressure in the coming months for the global outlook.

A slowdown in the world’s second-largest economy and the fallout from ongoing aggressive monetary tightening by central banks forced the Asian Development Bank on Thursday to lower its growth forecast for the region.

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About the author: Sarah Gracie

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