Business Activity Deteriorates Globally as Recession Fears Mount
2022.07.22 19:46
Business Activity Deteriorates Globally as Recession Fears Mount
(Bloomberg) — Business activity deteriorated across the world in July, heightening fears of a global recession.
In the US, S&P Global’s July survey of purchasing managers showed business activity contracted for the first time in more than two years. In the euro area, the composite index registered its worst reading since the pandemic lockdowns of early 2021. Figures from Japan and Australia also deteriorated in the month, though remained in expansionary territory.
Central banks worldwide are aggressively raising interest rates in an attempt to tame rampant inflation. Earlier this week the European Central Bank increased interest rates for the first time in more than a decade, and the Federal Reserve is expected to hike rates by another 75 basis points next week.
The surging cost of living — from food to gas to rent — has eroded consumers’ ability to keep spending on goods and services. The challenge of cooling the economy enough to stem inflation but not so much as to tip into recession is becoming increasingly difficult.
Some US earnings reports point to a slowdown. Snap Inc (NYSE:SNAP). on Friday reported disappointing sales as advertisers slashed budgets, a trend the company chalked up to broad economic uncertainty. Twitter Inc (NYSE:TWTR). cited similar concerns as its revenue fell. Wireless carrier Verizon Communications Inc (NYSE:VZ). cut its forecast, adding to concerns that consumers are pulling back.
Service-sector activity in the US slid to its lowest level since May 2020. Excluding the early months of the pandemic, the July figure was the weakest in records back to 2009.
“Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook” in the US, said Chris Williamson, chief business economist at S&P Global (NYSE:SPGI) Market Intelligence.
Meantime, Europe also saw declines in both manufacturing and services indexes, but manufacturing — rather than services — posted its first contraction since 2020.
“Of greatest concern is the plight of manufacturing, where producers are reporting that weaker-than-expected sales have led to an unprecedented rise in unsold stock,” Williamson said of the euro area.
©2022 Bloomberg L.P.
