Fears of US recession darken prospects for Japan, global factories

By Leika Kihara

TOKYO (Reuters) – Japan’s factory growth slowed to a four-month low in June as China COVID-19 restrictions cut supply chains, while many other Asian economies also faced headwinds amid growing risks for prospects. possible US recession.

Australia’s manufacturing activity remained stable this month, according to data from Thursday, which, along with data from Japan, preceded a series of European and US Consumer Price Index (PMI) surveys expected to be released later in the day.

The measurements will be scrutinized as financial markets worry about US Federal Reserve interest rate hikes and further aggressive tightening planned in the coming months, which have significantly increased the risk of a US recession.

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

“Stagnant inflation, characterized by persistently high inflation, high unemployment and weak demand, has become the dominant risk issue since the end of the first quarter of 22 and a plausible potential risk scenario,” he said in a 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 fight persistently high inflation.

A number of recent data from around the world have shown that policymakers are tight-lipped as they try to ease inflationary pressures without leading their respective economies into a sharp recession.

US retail sales fell unexpectedly in May and existing home sales fell to a two-year low, indicating that high inflation and rising borrowing costs began to hurt demand.

Britain’s economy shrank unexpectedly in April, raising fears of a sharp slowdown as companies protest rising production costs.

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

And in China, as exporters enjoyed steady sales in May, helped by easing domestic restrictions on COVID-19, many analysts expect more difficult prospects for the world’s second-largest economy due to the war in Ukraine and rising raw material costs. materials.

The PMI index of au Jibun Bank flash Japan Manufacturing fell to 52.7 in June from 53.3 in May, marking the slowest expansion since February, the survey showed on Thursday.

In a sign of the continuing impact of the pandemic, car giant Toyota Motor Corp reduced its global production plan in July by 50,000 vehicles as semiconductor shortages and COVID-19 spare parts supply cuts continued to limit production.

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

The key for Japan will be whether consumption recovers strongly enough from a pandemic-induced recession to offset emerging outside winds, such as the expected US slowdown, analysts say.

The PMIs of France, Germany, the eurozone, Britain and the United States are expected to be released later on Thursday.

(Report by Leika Kihara · Edited by Shri Navaratnam)

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