World at rising risk of recession as inflation hits consumers

The global economy is increasingly at risk of sliding into recession, surveys showed on Tuesday, as consumers faced with generation-high inflation rein in spending while central banks are tightening policy aggressively just when support is needed.

And supply chains yet to recover from the coronavirus pandemic have been further damaged by Russia’s invasion of Ukraine and China’s strict COVID-19 lockdowns, hurting the manufacturing industry.

A myriad of purchasing managers’ surveys published on Tuesday from Asia to Europe to the United States showed business activity contracting and pointed to little hope of a turnaround anytime soon.

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

“That’s a reduction in economic output so that’s what’s driving the recession. Higher interest rates are playing a small part but really it’s the higher inflation.”

U.S. private-sector business activity contracted for a second straight month in August and is at its weakest in 18 months, with particular softness registered in the services sector.

There is a 45% chance of a U.S. recession within a year and 50% within two years, according to economists in a Reuters poll on Monday who did however largely say it would be short and shallow.

It was a similar story in the euro zone where the cost of living crisis meant customers kept their hands in their pockets and business activity across the bloc contracted for a second month.

The gloomy data pinned the euro to a 20-year low against the dollar, with surging gas prices adding to misery dragging Europe towards recession.

In Britain, outside the European Union, private sector growth slowed to a crawl as factory output fell and the larger services sector eked out only a modest expansion, indicating a recession was coming there.