Goodbody Stockbrokers has today warned that the global economy is approaching a period where recession may begin to feel like a matter of "when, not if." Goodbody has cited the latest release of Purchasing Manager Indices for the US, the UK, and Europe yesterday, that all contained ominous signs of a downturn that is fast approaching, none more so than in the US where the PMI displayed a notable miss on consensus.
The US Composite Output Index, a generally good indicator of economic growth, was in contraction territory for the second month in a row at 45, the lowest its been since the first wave of lockdowns at the beginning of the pandemic in April 2020. The step deeper into negative growth was driven by far weaker than expected services output, which dell deeper into contraction (44.1 vs 49.8 consensus) as inflation, rising interest rates and supply shortages all fed into softer consumer demand. The manufacturing sector continued to grow, albeit output growth did also ease and thus also contributed to a slowdown in the headline composite index.
The UK and Europe depict two economies that are stagnant at best and that sit at the tipping point of recession. The respective composite indices were 49.2 and 50.9, although in old Europe (including the UK), it was the manufacturing sector that drove the slowdown. Manufacturing output in the UK dropped 6pts to 46, suggesting a contraction, while manufacturing output in Europe also contracted, albeit at a tamer pace, with the manufacturing index there reading 49.7. Services output continued to grow, but is edging closer to the critical 50 mark (Europe: 50.2, UK: 52.5).
Finally, Goodbody say a common theme emerging from all of yesterday’s releases was that labour market conditions are beginning to normalise, with employment growth reaching 18-month lows, and inflation pressures on both the input and output side have eased from their highs, although remain elevated with respect to history.
According to Goodbody Stockbrokers, "Inflation, rising interest rates, and supply-chain backlogs are clearly taking their toll on the economies globally. A technical recession in the US looks set to continue, while Europe and the UK sit on the brink of recession. This spells ominous signs for the global economy, especially when including the property market burst that is ongoing in China. One thing is certain in the current environment, policymakers have got a poison cocktail on their hands as they look to tighten monetary policy through a period of economic slowdown where inflation is driven primarily by supply-side factors."