US recession fears dim prospects for global growth

WASHINGTON/LONDON/TOKYO, June 23 (Reuters) – Manufacturing sector growth is slowing around the world as China’s COVID-19 restrictions and Russia’s invasion of Ukraine disrupt supply chains and keep inflation going. at the highest level in years, while the growing risk of a US recession poses a new threat to the global economy.

Factory activity indicators released Thursday in Japan, Britain, the eurozone and the United States all eased in June, with U.S. producers reporting the first absolute drop in new orders in two years, amid falling confidence. of consumers and companies.

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

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“Business confidence is now at a level that would normally herald an economic slowdown, increasing the risk of recession,” said Chris Williamson, chief business economist 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, as the coronavirus pandemic was setting in, with S&P Global’s purchasing managers index falling to a drop of nearly two years.

“Eurozone PMI surveys for June showed an even greater slowdown in the services sector, while production in the manufacturing sector now appears to be falling completely,” 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 a one in three chance of a recession in the bloc within 12 months, economists predicted in a Reuters poll published on Thursday. They also said that inflation – which hit a record high of 8.1% last month – had yet to peak.

Jerome Powell, chairman of the Federal Reserve, said on Wednesday that the central bank is not trying to engineer a recession in the United States to contain inflation, but is fully committed to controlling prices, even if that poses the risk of an economic slowdown. . see More information

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

Inflation remains at least three times higher than the Fed’s 2% target and is expected to deliver another 75 basis point interest rate hike next month, according to economists surveyed by Reuters.

Despite Powell’s comments, some primary traders have started to predict a recession as early as this year or anticipate his recession calls.

US investment firm PIMCO warned on Wednesday that central banks tightening monetary policy to combat persistently high inflation increased the risk of recession. see More information

There is a 40% chance of a U.S. recession in the next two years, with a 25% chance that it will happen in the next year, 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 late 1Q22 and a plausible potential risk scenario,” Fitch Ratings said in a report released this week.

A series of recent data around the world has shown that policymakers are walking a tightrope as they try to defuse inflationary pressures without sending their economies into a sharp downturn.

US retail sales unexpectedly fell in May and existing home sales fell to the lowest level in two years, a sign of high inflation and rising borrowing costs were starting to dampen demand. see More information

Britain’s economy unexpectedly shrank in April, raising fears of a sharp slowdown as companies complain about rising production costs. Its PMI also showed signs the economy was stalling as high inflation hit new orders and companies reported levels of concern that normally signal a recession. see More information

There is a 35% chance of a British recession within 12 months, another Reuters poll showed.

In Asia, South Korea’s exports in the first 10 days of June shrank nearly 13% from a year earlier, underscoring the increased risk to the region’s export-oriented economies.

While Chinese exporters saw solid 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 war in Ukraine and rising raw material costs.

Japan’s au Jibun Bank flash manufacturing PMI marked its slowest expansion since February. see More information

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Reporting by Lucia Mutikani in Washington, Jonathan Cable in London and Leika Kihara in Tokyo; Edited by Shri Navaratnam and Toby Chopra

Our Standards: The Thomson Reuters Trust Principles.

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