World at growing risk of recession as inflation hits consumers

  • Global surveys show shrinking business activity
  • Little hope of a turnaround anytime soon
  • Inflation hits multi-decade highs in many parts of the world

LONDON, Aug 23 (Reuters) – The global economy is increasingly at risk of slipping into recession, surveys showed on Tuesday, as consumers facing generational inflation limit spending while central banks aggressively tighten policy just when support is needed.

And supply chains that have yet to recover from the coronavirus pandemic have been further damaged by Russia’s invasion of Ukraine and China’s strict COVID-19 lockdowns, hurting to the manufacturing industry.

A myriad of purchasing manager surveys released on Tuesday from Asia to Europe to the United States showed a contraction in business activity and pointed to little hope of a turnaround anytime soon.

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“Put simply, it is extremely high rates of inflation that force households to pay more for the goods and services they need to buy, meaning they have less to spend on other items,” he said. said Capital’s Paul Dales.

“It’s a reduction in economic output, so that’s what’s causing the recession. Rising interest rates play a small role, but it’s actually rising inflation. .”

US private sector business activity contracted for a second consecutive month in August and is at its weakest level in 18 months, with particular weakness recorded in the services sector. Read more

There is a 45% chance of a US recession within a year and 50% within two years, according to economists in a Reuters poll on Monday who, however, widely said it would be short and superficial.

It was a similar story in the eurozone where the cost of living crisis meant customers kept their hands in their pockets and business activity across the bloc contracted for a second month.

The gloomy data pinned the euro to its lowest level in 20 years against the dollar, as soaring petrol prices added to the misery dragging Europe into recession.

In Britain, outside the European Union, private sector growth has slowed to a blistering pace as factory output has fallen and the service sector as a whole has seen only modest expansion. , indicating that a recession was looming there. Read more

Japanese factory growth slowed to a 19-month low this month as output and the decline in new orders deepened, while Australia’s Composite Purchasing Managers’ Index fell below 50 separating growth from contraction. Read more

FEEL THE PINCH

Inflation has reached multi-decade highs in many parts of the world, forcing central banks to tighten monetary policy as their mandate is to maintain price stability.

The Federal Reserve has raised its benchmark overnight interest rate by 2.25 percentage points this year as it tries to rein in decades-high inflation and is expected to raise it again next month, according to a report. Reuters poll released on Monday.

Yet despite this aggressive policy, inflation is expected to remain above the Fed’s target beyond this year and next.

Last month, the Bank of Canada surprised markets with a bigger-than-expected 100 basis point hike in its key interest rate and said further hikes would be needed.

The European Central Bank, which has struggled to achieve meaningful inflation for years but is now facing it well above target, launched its rate hike cycle in July, raising interest rates more than expected and a Reuters poll predicts that it will continue on its tightening path .

Britain’s Bank of England was one of the first among peers to raise borrowing costs and is expected to continue to do so, despite warning that the country faces a long recession as government bills energy are expected to push consumer price inflation above 13% in October.

Central bank heavyweights including Fed Chairman Jerome Powell are meeting this week for their annual symposium in Jackson Hole, Wyoming, and could shed light on the scale of future rate hikes and the strength of their savings. Read more

“Following signs of an end to rate hikes among the central banks that led the tightening, investors can anticipate that the Fed, ECB and BoE could end their rate hikes in the first half of 2023,” Richard said. Flynn by Charles Schwab.

“This year’s symposium may provide an early indication of when the shift from increases to reductions might occur.”

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Reporting by Jonathan Cable; Editing by Nick Macfie

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