Factory Production Data Exacerbate Recession Worries

Global factory growth stagnated in June amidst an economic climate that left consumers purchasing less and continued supply chain disruptions caused by China’s COVID-19 lockdowns and Russia’s invasion of Ukraine.

Also, central bankers warned of future interest rate increases, and chipmakers reported that demand was low. Micron Technology Inc., for instance, predicted lower-than-expected revenue for the current quarter, telling Reuters that the market had "weakened considerably in a very short period of time."

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"Between central banks digging their heels in to counter inflation and growing fears there is absolutely no path to a soft landing for the global economy, there are few, if any, places to hide," said Stephen Innes at SPI Asset Management.

Economists are expressing concern about a potential recession. A Reuters poll of economists in June found there is a 40% chance of a recession in the United States in the next two years and a 25% chance of one occurring in the coming year.

"There's hope China's economy will pick up after a period of some weakness. But now there's a risk of a slowdown in the U.S. and European economies," Yoshiki Shinke, Chief Economist at Japan's Dai-ichi Life Research Institute, told Reuters. "It will be a tug of war between the two, though there's a lot of uncertainty over the global economic outlook."

Earlier, surveys showed factory activity in China was recovering in June, but a slowdown in both Japan and South Korea, as well as a contraction in Taiwan, highlighted the strain caused by supply chain disruptions, rising costs, and persistent material shortages. While it appears as though China’s economy has finally started to chart a path to recovery out of the supply shocks caused by its strict lockdowns, but risks remain, such as diminished consumer spending and the fear of further waves of infections.

Meanwhile, data show that South Korean exports, which are seen as a proxy for global trade because the nation’s manufacturers are positioned in many parts of the world supply chain, are growing at their slowest pace in 19 months, and Indian factory output expanded at its slowest pace in nine months, as elevated price pressures restricted output and demand.

If the global economy is in the midst of a recovery, it looks to be a very slow one.