There is a slowdown in manufacturing growth all over the world, as Russian invasion of Ukraine and the COVID-19 curbs in China have disrupted the supply chains and have driven inflation numbers to their highest levels in years. Moreover, the global economy is also at risk due to the threat of a recession in the United States.
Data is a Big Concern
On Thursday, statistics of factory activity were released in Britain, Japan, the United States and the euro zone, all of which showed a decline. As a matter of fact, US producers reported that there was a fall in new orders for the first time in two years because of a decline in business and consumer confidence.
Tracking the services and manufacturing sectors, the PMI Output Index of S&P Global fell to 51.2 in June, when it had stood at 53.6 in the previous month. This markets the slowest pace of growth recorded in the last five months. In May, the manufacturing component had been recorded at 57, but it came down to 52.4 in June, which is the lowest value seen in two years. Meanwhile, economists had predicted it to be at 56.
Market analysts said that business confidence had now reached a low that warned of an economic downturn. Moreover, manufactured goods saw their demand fall in the euro zone in June because of high prices. Such a rapid fall in demand had last occurred in May 2020 when the coronavirus pandemic had been taking hold.
Data showed that the PMI surveys for the euro zone in the month of June indicated that the services sector had slowed down, while there was an outright drop in the manufacturing sector output. Even though the price indices are strong, it seems that the euro zone is now dealing with stagflation.
According to economists, there is now a one-in-three chance of an economic recession in the euro zone in the next 12 months. Inflation had already reached a record high last month at 8.1%, but economists have said that it has not yet hit its peak.
On Wednesday, the Chairman of the US Fed, Jerome Powell said that the central bank was not trying to dip the economy into recession just to put a stop to the rising inflation. He said that they were dedicated to controlling the prices and were ready to risk an economic downturn to do so.
The current statistics show that inflation is three times higher than the target of 2% of the Fed. The central bank is expected to boost the interest rate by a further 75 basis points in its next meeting in the coming month. Despite the comments from the chair, many analysts have begun to predict a recession by the end of this year. The recessionary risk has gone up because of the aggressive monetary policy tightening for combating inflation. Polls show that the chances of a recession in the US are 40% in the next two years 25% this year.