WSJ: European and US Economies Decline, Recession Looms Ahead
In June, European and US economies slowed sharply as soaring food and energy prices weakened demand for other products and services according to business and consumer surveys cited by the Wall Street Journal. This increases the global risk of recessions.
High inflation is spreading worldwide and the war in Ukraine has hit global growth. Economies are also up against long-term supply-chain disruptions and increasing interest rates that hit business investment. This winter, Europe might also face an energy shortage.
Germany moves closer to gas rations
On Thursday, Europe’s biggest economy implemented the second stage of its three-step plan to cope with shortage of natural gas, inching closer to prospective rationing this winter. Experts are afraid this will harm German manufacturers.
US purchasing index at five-month low, eurozone at 16
According to data company S&P Global, the US composite purchasing managers index dropped from 53.6 in May to 51.2 in June, a five-month dip. This index measures activity in the services and manufacturing sectors.
There was a corresponding decline of this index in the eurozone: from 54.8 in May to 51.9 in June, a 16-month low. All numbers below 50.0 point to a contraction in activity.
According to S&P economist Chris Williamson, this data shows the US economy will grow by less than 1% in June y/y and shrink in the third quarter. He told the Wall Street Journal:
Having enjoyed a miniboom from consumers returning after the relaxation of pandemic restrictions, many services firms are now seeing households increasingly struggle with the rising cost of living. There has consequently been a remarkable drop in demand for goods and services during June compared to prior months.
In Europe, the June decline in activity was the most prominent one recorded since November 2008, when the global downturn was at its peak.
Barclays cuts growth forecasts
The war in Ukraine war has changed the course of the global and especially the European economy, wrote economists at Barclays in their most recent quarterly report. They cut global economic growth forecasts and predict the US economy will grow by 2.2% in 2022 and just 1.1% in 2023, down from 3.5% and 2.3% respectively.
Bracing for recession
Corporations like Ford are getting ready for a possible recession. According to company CFO John Lawler, increased commodity costs are cutting into profitability in some areas. The company’s financing arm observed an increased frequency in car loan defaults.
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