London. Data released on Friday showed that the global economy appears increasingly likely to enter a sharp slowdown, just as central banks aggressively reversed the ultra-easy monetary policy adopted during the pandemic to support growth.
Business activity in the United States, the world’s largest economy, contracted this month for the first time in nearly two years; In the eurozone it fell for the first time in more than a year and in the UK growth has stalled at its lowest level in the past 17 months, according to surveys of purchasing managers.
In another worrying sign for the global economy, the Japanese government is expected to cut its domestic growth forecast.
Meanwhile, China’s strict coronavirus lockdowns and Russia’s invasion of Ukraine have further damaged global supply chains that have yet to recover from the pandemic.
Business activity in US contracts in July for the first time in two years
Global agency Standard & Poor’s said on Friday that the preliminary production index of the US composite PMI fell much more than expected from the final reading of 52.3 in June to 47.5 this month.
This is the fourth consecutive monthly decline, driven by weakness in the services sector, which shrank enough to offset weak growth in the manufacturing sector.
A reading below 50 indicates that business activity has contracted, so the report will fuel the debate over whether the US economy has slipped back into recession – or is close to it – after rebounding sharply from the recession. From early 2020 to the start of the COVID-19 pandemic.
“Preliminary PMI data for July indicate a worrying deterioration in the economy,” Chris Williamson, chief business economist at Standard & Poor’s Global, said in a statement. “Except in the months of pandemic shutdowns, production is declining at a rate not seen since 2009 in the midst of the global financial crisis.”
Contracts for commercial activity in the Eurozone
Business activity in the euro zone contracted unexpectedly this month as the downturn in the manufacturing sector accelerated and growth in the services sector almost stalled, as higher costs pushed consumers to cut spending, according to a survey.
The S&P Global Composite Purchasing Managers’ Index (PMI), considered a good indicator of overall economic health, fell from 52.0 in June to 49.4 in July, well below all expectations in a Reuters poll that had forecast a more moderate decline to 51.0.
The European Central Bank said on Friday, based on a survey of 71 large firms, that businesses across the eurozone continued to report rising inflationary pressures and accelerating wage growth, even as overall growth expectations turned increasingly hazy.
Inflation in the currency union reached 8.6 percent last month, according to official data, and the European Central Bank raised interest rates more than expected on Thursday, underscoring that runaway inflation fears now outweigh financial considerations.
The US Federal Reserve, which is battling inflation at its highest point in 40 years, is expected to raise interest rates again by three-quarters of a percentage point (0.75 percent) at its meeting next week.
The Reuters poll showed that the average probability of a recession in the United States next year was 40 percent and 50 percent within two years, a significant improvement over the June poll.
slowdown in Asia
China and Japan remain exceptions by maintaining an expansionary monetary policy, indicating that their economies – second and third in the world – lack the strength to compensate for the weakness of other parts of the world.
Concerns about a global slowdown have cast a shadow over the prospects for recovery in Asia as growth in industrial activity slowed in Japan and Australia, keeping pressure on policymakers to prop up their economies as monetary policy tightens to combat inflation.
Japan’s manufacturing activity grew in July at the slowest pace in 10 months, a Purchasing Managers’ Index survey showed on Friday, hurting an economy struggling to recover from the wounds of the pandemic.
“PMIs for July indicate a slowdown in the manufacturing sector with weak demand, while the latest wave of Covid-19 is starting to hit the services sector,” Marcel Thilliant, chief Japanese economist at Capital Economics, said of PMIs in Japan.
An independent survey on Friday showed factory activity also slowed in Australia, with the index falling from 56.2 in June to 55.7 in July.
Lockdowns affect growth in China
China’s economic growth slowed sharply in the second quarter, weighed down by the widespread Covid lockdown and pointing to continued pressure in the coming months from a bleak global outlook.
A slowdown in the world’s second-largest economy, as well as the fallout from a violent central bank tightening, forced the Asian Development Bank on Thursday to cut its growth forecast for the region.