Economy
23 June 2022
US recession fears darken outlook for global growth
Stagflation is being detected in the euro zone.

Photo by Markus Spiske on Unsplash
Stagflation is being detected in the euro zone.
LONDON/TOKYO, June 23 (Reuters) - Manufacturing growth is slowing from Asia to Europe as China's COVID-19 curbs and Russia's invasion of Ukraine disrupt supply chains, while the growing risk of a recession in the United States poses a new threat to the global economy.
High prices in the euro zone meant demand for manufactured goods fell in June at the fastest rate since May 2020 when the coronavirus pandemic was taking hold, with S&P Global's headline factory Purchasing Managers' Index (PMI) falling to a near two-year low of 52.0 from 54.6.
A Reuters poll had predicted a more modest drop to 53.9 and the index nudged closer to the 50 mark separating growth from contraction.
"June's euro zone PMI surveys showed a further slowdown in the services sector, while output in the manufacturing sector now seems to be falling outright," said Jack Allen-Reynolds at Capital Economics.
"With the price indices remaining extremely strong, the euro zone appears to have entered a period of stagflation."
There is a roughly one in three chance of a recession in the bloc within 12 months, economists in a Reuters poll published earlier on Thursday predicted. They also said inflation - which hit a record high of high of 8.1% last month - was yet to peak.
Jerome Powell, chair of the Federal Reserve, said on Wednesday the central bank was not trying to engineer a recession in the United States to stop inflation but was fully committed to bringing prices under control even if doing so risks an economic downturn.
He acknowledged a recession was "certainly a possibility."
Inflation continues to run at least three times higher than the Fed's targeted level of 2% and it is expected to deliver another 75 basis point interest rate hike next month, according to economists polled by Reuters.
Despite Powell's comments a few primary dealers have either started predicting a recession as early as this year or have brought forward their recession calls.
U.S. investment firm PIMCO warned on Wednesday that central banks tightening monetary policy to fight persistently high inflation raised the recessionary risk.
There is a 40% chance of a U.S. recession over the next two years, with a 25% chance of that happening in the coming year, a Reuters poll found earlier this month.
"The global macroeconomic outlook has deteriorated materially since end-2021," said Fitch Ratings, which slashed this year's global growth outlook to 2.9% in June from 3.5% in March.
"Stagflation, which is characterized by persistent high inflation, high unemployment and weak demand, has become the dominant risk theme since late 1Q22 and a plausible potential risk scenario," it said in a report released this week.
A string of recent data globally showed policymakers are walking a tight rope as they try to defuse inflation pressures without tipping their economies into a steep downturn.
U.S. retail sales unexpectedly fell in May and existing home sales tumbled to a two-year low, a sign high inflation and rising borrowing costs were starting to hurt demand.
Britain's economy unexpectedly shrank in April, adding to fears of a sharp slowdown as companies complain of rising production costs. Its PMI also showed signs the economy was stalling as high inflation hit new orders and businesses reported levels of concern that normally signal a recession.
There is a 35% chance of a British recession within 12 months, another Reuters poll showed.
In Asia, South Korea's exports for the first 10 days of June shrank almost 13% year-on-year, underscoring the heightening risk to the region's export-driven economies.
While Chinese exporters enjoyed solid sales in May, helped by easing domestic COVID-19 curbs, many analysts expect a more challenging outlook for the world's second-biggest economy due to the Ukraine war and rising raw material costs.
The au Jibun Bank flash Japan Manufacturing PMI slipped to 52.7 in June from 53.3 in May, marking the slowest expansion since February.
(Reporting by Jonathan Cable and Leika Kihara; Editing by Shri Navaratnam and Toby Chopra)
Inflation rose 6% across the US economy in February 2023, according to the Consumer Price Index.
U.S. inflation ticked down in February as food prices started to fall, but shelter prices continued to remain high. Meanwhile, ecommerce prices turned further into deflation, as both annual and monthly comparisons showed prices coming down.
Let’s take a look at data on inflation across the economy, and ecommerce:
The Consumer Price Index for February 2023 showed the following:
On an annual basis, inflation rose 6% from February 2022. That’s down from 6.4% in January, continuing a downward motion in prices.
On a monthly basis, prices increased 0.4%, which was down slightly from the 0.5% increase in January.
Core inflation, which leaves out volatile food and energy prices, rose 5.5% year-over-year, down only slightly from 5.6% in January. On a monthly basis, core inflation was up 0.5%.
Food inflation dipped below 10% for the first time in months, registering at 9.5%. Food at home, which includes grocery, was 10.2%, compared with 11.3% in January. Five of the six major grocery indexes increased on the month.
Snacks brought a rare decrease in the food category, falling 0.9% for the month.
Shelter continues to be the driver of inflation. The shelter index increased 0.8% for the month, and 8.1% for the year.
Among consumer goods categories, CPI showed the following:
The annual change in CPI year-over-year inflation. (Via US BLS)
The report brought the latest sign that growth of the headline inflation reading was slowing. This trend now dates to October 2022. However, there continues to be plenty of signs that inflation is remaining stubborn on the way down. Shelter inflation is particularly high, and only rising. Electricity was up 12.9%. Meanwhile, core inflation's rise only inched down. Inflation continues to be a presence for consumers, which means elevated prices could continue to lead to cutbacks in discretionary spending.
After months of high inflation, consumers are increasing credit card balances and dipping into savings as they seek to make ends meet, said GlobalData Managing Director Neil Saunders.
“On the surface, these adjustments have allowed the consumer economy to remain resilient in the face of persistent inflation,” Saunders said. “However, under the surface there are cracks: behaviors among the lowest income households have changed sharply, reduced volumes are putting pressure on many retail and consumer businesses, and the financial position of many households is deteriorating. In short, inflation is not an enemy that consumers can withstand indefinitely.”
Comparing DPI and CPI. (Image via Adobe)
The Adobe Digital Price Index showed a deflationary motion for February, indicating that ecommerce prices are coming down even as the wider economy still sees prices rising.
Overall, the DPI showed online inflation falling 1.4% year-over-year, and 0.3% on a monthly basis. It was the sixth straight month that annual prices decreased.
Digging further into the data, 10 out of 18 categories showed decreases. Notable categories included:
Electronics fell 12.6% year-over-year, and 1.7% month-over-month. This continues notable drops in electronics prices, even after holiday season discounting has long since been completed.
Toys fell 6.5% year-over-year, and 0.4% month-over-month.
Home and garden products fell 3.8% year-over-year, while rising 0.2% monthly.
Furniture and bedding prices fell for the first time in 33 months, down 0.1% year-over-year and 0.6% monthly. “Consumers have become increasingly comfortable buying furniture online, after a pandemic where many wanted to spruce up their living spaces and had no choice but to tap ecommerce,” Adobe states.
Price increases are also slowing in categories that have shown more stubborn inflation.
Grocery prices cooled for the fifth straight month. They rose 11.4% year-over-year, but that was down from a 12.6% increase in January. This is the rare digital category that moves in concert with the Consumer Price Index. That’s because more people are buying groceries online, and when they do, they are ordering mostly from the same grocery stores where people shop in person.
Apparel prices were up 5.1% year-over-year, which is down notably from 16.7% in February of 2022.
Tools and home improvement are also coming down. The increase was 6.2% year-over-year, falling from 8.3% in December.
Check out the full category breakdown below:
(Photo courtesy of Adobe)