World faces rising risk of recession as inflation hits consumers

The global economy is increasingly at risk of slipping into recession, surveys showed on Tuesday, as consumers grapple with the highest inflation in a generation and rein in spending as central banks aggressively tighten monetary policy. just when support is needed.

And supply chains, which have yet to recover from the coronavirus pandemic, have been further hampered by Russia’s invasion of Ukraine and China’s strict Covid-19 lockdowns, which have negatively affected the industry.

A series of surveys of purchasing managers published on Tuesday, from Asia to Europe to the United States, showed a contraction in business activity and held out little hope for a turnaround anytime soon.

“Put simply, it’s the extremely high rates of inflation that are resulting in families having to pay more for the goods and services they need to buy, which means they have less to spend on other items,” said Paul Dales of Capital.

“That’s a reduction in economic output, so that’s what drives the recession. Higher interest rates play a small role, but it is actually higher inflation.”

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

There is a 45% chance of a U.S. recession within a year and a 50% chance within two years, according to economists in a Reuters poll released on Monday that, however, largely said it would be short and shallow. [ECILT/EUA]

It was a similar scenario in the eurozone, where the cost-of-living crisis caused customers to keep their hands in their pockets and business activity across the bloc contracted for a second month.

The dismal data sent the euro to a 20-year low against the dollar, as rising gas prices fueled suffering dragging Europe into recession.

Outside the European Union, private sector growth in the UK has slowed as manufacturing output has slumped and the service sector has seen only modest expansion, an indication of an impending recession in the country.

Japan’s factory growth slowed to a 19-month low this month as declines in production and new orders deepened, while Australia’s Composite Purchasing Managers’ Index fell below the 50 mark that separates growth. of contraction.