Recession would be brutal for countries that have still not recovered from covid-19
recession imminent?” asks a new report by the World Bank. The answer—that one very well might be—will not be a surprise to manufacturers. In August, global manufacturing output shrank relative to the month before, and new orders fell for the second month in a row, according to JPMorgan Chase, a bank. As economic woes mount, worse could be ahead, for factories and the broader economy.
A softening of demand was inevitable as life became more normal, and spending shifted from goods back to services. But even service-sector activity looks disappointing of late, and manufacturing troubles reflect much bigger shocks. The most serious is the energy-price crunch caused by Russia’s war in Ukraine. Industrial production in the euro zone fell by 2.4% in July relative to the year before.
The drag from high energy costs and a limping Chinese economy has been reinforced by tightening monetary policy. Surging demand for goods over the past two years overtaxed the capacity of factories, ships and ports, pushing inflation up. High prices have proven remarkably persistent—thanks in part to the shock of the war in Ukraine—so central banks are taking aggressive action.
A global recession is not a foregone conclusion. Manufacturing suffered in 2015-16 and in 2019, and in both cases the economy avoided a downturn. But in these periods, policy changed dramatically to prevent slackening growth from snowballing. In the middle of the decade, the Federal Reserve raised rates far more slowly than it had led markets to expect—and China opened a firehose of stimulus.
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