US recession fears darken outlook for Japan, global factories

TOKYO (Reuters) – Growth in factory activity in Japan slowed to a four-month low in June as China’s COVID-19 restrictions disrupted supply chains, while many other economies d Asia also faced headwinds amid growing risks to the outlook for a potential US recession.

Australian manufacturing activity has remained flat this month, data showed on Thursday (June 23rd), which, along with figures from Japan, comes ahead of a series of European and US Purchasing Managers’ Index (PMI) surveys. which are expected to be released later today.

The readings will be closely watched as financial markets fret over sharp interest rate hikes from the Federal Reserve and further aggressive tightening expected in the coming months, which has significantly increased the risk of a U.S. recession.

“The global macroeconomic outlook has deteriorated significantly since the end of 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 1Q22 and a plausible potential risk scenario,” he said in a statement. report published this week.

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

A string of recent data from 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.

U.S. retail sales fell unexpectedly in May and existing home sales fell to their lowest level in two years, a sign of high inflation and rising borrowing costs that were starting to set in. harm demand.

Britain’s economy contracted unexpectedly in April, adding to fears of a sharp slowdown as businesses complain 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 recorded 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.

Japan’s manufacturing PMI at Jibun Bank slipped 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 lingering impact of the pandemic, auto giant Toyota Motor Corp cut its July global production plan by 50,000 vehicles as semiconductor shortages and parts supply disruptions linked to the COVID-19 continued to hamper production.

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

The key for Japan will be whether consumption rebounds strong enough from a pandemic-induced slump to offset emerging external headwinds such as an expected slowdown in the United States, analysts said.

PMI indices for France, Germany, the eurozone, Britain and the United States are due out later Thursday.

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