Page 85 - bne Magazine August 2022

bne August 2022 New Europe in Numbers I 85
US and Chinese slowdown will tip the world into recession, says IIF
bne IntelliNews
The worsening economic data
coming out of the US and yet another coronavirus (COVID-19) lockdown in China will tip the world into a global recession, the Institute of International Finance (IIF) said in a note on July 1.
The think-tank has been warning of
a possible recession in Europe as a result of soaring inflation, exacerbated by the war in Ukraine. But the problems are spreading further afield as stagflation is about to set in as central banks around the world fail
to take control of inflation.
Six weeks ago the IIF was predicting its global growth forecast at close to zero, adjusting for sizeable statistical carry- over from last year.
“Since we made this forecast, however, it has been US data that have surprised to the downside the most. This is driven by the sharp tightening in US financial conditions, with mortgage rates seeing their biggest rise – in real terms – in over fifteen years,” said Robin Brooks, managing director and chief economist at IIF, with his colleagues Jonathan Fortun and Jack Pingle, in a note. “The rapid slowdown in the US pushes our global growth forecast from near zero into outright contraction. “
A quick end to the war in Ukraine would make a big difference, as that would quickly bring an end to the food crisis, as well as reducing energy and commodity prices, which in turn would reduce inflationary pressure. However, with Russia's very slow, albeit steady, progress in the war, a quick end seems increasingly unlikely.
At the same time, Brookes says that the coronavirus pandemic is unlikely
to abate anytime soon and that more mutations and fresh infection waves are
to be expected, which will lead to new lockdowns. “In short, things look bleak for the global outlook,” said Brookes.
Previously the IIF was anticipating an outright recession in the Euro zone and on weak growth in China, with a 3.5% global growth forecast for 2022 substantially below consensus. Since then, the World Bank has almost halved its global growth forecast to 2.8% from 4.1% at the start of the year and others have also been revising downwards as the situation continues to deteriorate.
Germany’s economy is also slowing, and Berlin is becoming increasingly nervous about the possibility of being shut off from Russian gas. At the same time, the forward-looking orders minus inventories measure using Germany’s manufacturing PMI has sunk to levels last seen during the global financial
US data have weakened sharply
crisis in 2008, reports the IIF. German consumer confidence has been languishing at levels below the 2020 COVID shock, “which is remarkably bad,” says Brookes.
Russia is in position to inflict real damage in Europe, should it turn off the gas, as that would send gas prices spiking and the cost of commodities upwards too that would only pour petrol on the inflation bonfire that is already burning.
China also remains a wild card,
says Brookes, as the spread of the coronavirus there is not predictable. “Unlike the first COVID wave in the first quarter of 2020, weakness in Chinese data looks set to be more drawn out, whether in manufacturing or in services. Whatever happens, China is unlikely
to be a source of stimulus as global recession risk builds,” says Brookes.
Economists have been cutting the global growth outlooks all year as the chances of a global recession become increasingly likely. Source: Haver, IIF
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