US recession fears cloud outlook for Japan and global factories

Australian manufacturing activity has remained stable this month, according to data released on Thursday which, along with figures from Japan, precedes a series of European and US Purchasing Managers’ Index (PMI) surveys to be released later. late in the day.

The results will be closely watched as financial markets fret over sharp increases in interest rates by the Federal Reserve and continued aggressive tightening expected in the coming months, which have significantly increased the risk of a recession in the US. united states.

“The global macroeconomic outlook has deteriorated significantly since late 2021,” said Fitch Ratings, which cut this year’s global growth outlook to 2.9% in June from 3.5% in March.

“Stagflation, characterized by persistently high inflation, high unemployment and weak demand, has become the dominant risk theme since the end of Q1 22 and a plausible potential risk scenario,” the agency said in a statement. report released this week.

A growing number of market participants, including US investment firm PIMCO, are warning of the risk of recession as central banks around the world tighten monetary policy to combat persistently high inflation.

A recent spate of data around the world has shown that policymakers are walking a tightrope as they try to defuse inflationary pressures without tipping their respective economies into a sharp downturn.

In the United States, retail sales fell unexpectedly in May and sales of existing homes fell to their lowest level in two years, a sign that high inflation and rising borrowing costs are starting to hurt the economy. request.

Britain’s economy contracted unexpectedly in April, adding to fears of a sharp slowdown as businesses complained of rising production costs.

In Asia, South Korea’s exports for the first 10 days of June fell nearly 13% year-on-year, underscoring the growing risk to the region’s export-driven economies.

And in China, as exporters enjoyed strong sales in May, helped by the easing of national COVID-19 restrictions, many analysts expect a tougher outlook for the world’s second-largest economy due to the war in Ukraine and rising raw material costs.

The Jibun Bank flash Japan Manufacturing PMI survey slipped to 52.7 in June from 53.3 in May, marking the weakest expansion since February, the survey showed on Thursday.

In a sign of the pandemic’s lingering impact, automotive giant Toyota Motor Corp cut its July global production plan by 50,000 vehicles, semiconductor shortages and parts supply disruptions COVID-19 19 continuing to curb production.

“Despite the recent easing of lockdowns in China, delivery times from suppliers continued to lengthen last month, but at a slightly slower pace,” said Marcel Thieliant, senior economist for Japan at Capital Economics.

The key for Japan will be whether consumption rebounds strongly enough from a pandemic-induced slump, to offset emerging external headwinds such as an expected U.S. slowdown, analysts say.

PMI indices for France, Germany, the Eurozone, Great Britain and the United States will be released later Thursday.

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