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World economy: US recession fears cloud outlook for Japan, global factories

TOKYO, June 23 (Reuters) – Japan’s factory activity growth slowed to a four-month low in June as China’s COVID-19 restrictions disrupted supply chains, while many other economies in Asia also face headwinds amid growing risks to a potential’s prospects were US recession.

Australia’s manufacturing activity remained resilient this month, data showed on Thursday, which along with Japan’s numbers, preceded a series of European and US Purchasing Managers’ Index (PMI) surveys later in the day.

The readings will come under scrutiny as financial markets fret over the Federal Reserve’s sharp rate hikes and further aggressive tightening planned for the coming months, which have significantly increased the risk of a US recession.

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“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 and a plausible potential risk scenario since the end of Q1 22,” said a 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 combat persistently high inflation. Continue reading

A body of recent data around the world shows that policymakers are walking a fine line in trying to defuse inflationary pressures without plunging their respective economies into a steep downturn.

US retail sales fell unexpectedly in May and existing home sales fell to a two-year low, a sign that high inflation and rising borrowing costs were beginning to weigh on demand. Continue reading

The UK economy contracted unexpectedly in April, fueling fears of a sharp slowdown as companies complain about rising production costs. Continue reading

In Asia, South Korea’s exports contracted nearly 13% year-on-year in the first 10 days of June, underscoring the mounting risk to the region’s export-led economies.

And in China, while exporters posted solid sales in May, helped by the easing of domestic COVID-19 restrictions, many analysts are expecting a tougher outlook for the world’s second-biggest economy amid the Ukraine war and rising commodity costs.

au Jibun Bank’s Flash Japan manufacturing PMI slipped to 52.7 in June from 53.3 in May, marking the slowest expansion since February, the survey showed on Thursday. Continue reading

In a sign of the ongoing impact of the pandemic, auto giant Toyota Motor Corp (7203.T) has cut its July global production plan by 50,000 vehicles as semiconductor shortages and COVID-19 supply disruptions further dampened production. Continue reading

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

The key for Japan will be whether consumption recovers from a pandemic-related slump enough to offset emerging external headwinds such as an expected US slowdown, analysts say.

France, Germany, the euro zone, the UK and the US PMIs will be released later on Thursday.

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Reporting by Leika Kihara Editing by Shri Navaratnam

Our standards: The Thomson Reuters Trust Principles.

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