How’s the recession going? Wsj report
There is uncertainty about the trend of the global economy, but according to analysts the recession will be short-lived in Europe and the USA. Wall Street Journal insight
The global economy continued to deteriorate as 2022 comes to a close, but not as badly as economists previously feared, raising the possibility that the world could avoid a major slump next year.
Business surveys released on Wednesday showed output declines in the major US and European economies in November. However, data and other economic readings point to a mixed outlook, with parts of both economies continuing to show some resilience despite high inflation and rising interest rates.
In China, the world's second largest economy, the outlook is very bleak as the country faces a surge in COVID-19 cases. Economists expect growth to pick up and interest rates to rise. Economists expect growth to pick up again next year, thanks to Beijing's attempt to ease strict policies against the pandemic.
The resilience of the US labor market and the solidity of household budgets support consumer spending, the main engine of the economy. Healthy eating helped fuel retail sales in October and could boost the world's largest economy later this year. The US outlook hinges in part on how it weathers the Federal Reserve's interest rate hikes to cool inflation, which is nearing a 40-year high.
Europe is experiencing less economic disruption from Russia's decision to limit energy supplies than analysts feared. Many households and businesses in the region are adapting, such as by reducing energy use, said Adam Posen, president of the Peterson Institute for International Economics. European governments have also handed out larger-than-expected fiscal aid to households to deal with rising energy and food costs, he added.
"More than 75 percent of the world economy will do pretty well eventually," Posen said. The United States and the European Union “are likely to have relatively short, non-terrible recessions and return to growth perhaps as early as the fourth quarter of 2023”.
However, many developing countries are lagging behind. David Malpass, head of the World Bank, previously warned that developing countries face further economic risk: policies adopted by advanced economies to deal with inflation and the economic slowdown could leave insufficient capital for the poorest countries .
S&P Global said its composite manufacturing index for the United States, which includes services and manufacturing activity, fell to 46.3 in November from 48.2 the previous month, among the fastest contractions since 2009. An index below 50 indicates a contraction in economic activity, while an index above 50 indicates growth.
“Companies report growing difficulties due to rising cost of living, tightening financial conditions – particularly rising financing costs – and weakening demand in both domestic and export markets,” he said. said Chris Williamson, chief business economist at S&P Global Market Intelligence.
However, US firms reported that inflationary pressures eased in November, with material prices and transportation costs cooling.
The economic cost of rising energy prices was evident in surveys by purchasing managers of European businesses, which recorded another month of decline in activity in November. S&P Global said its composite manufacturing index for the euro zone rose to 47.8 in November from 47.3 in October but remained below the 50 threshold that distinguishes a contraction from an expansion.
The global economic outlook remains highly uncertain. A big question in the US is how quickly inflation will come down. The pace at which it does so will help determine how much the Fed raises interest rates and how long they are held. The central bank raised rates this year at the fastest pace since the 1980s. Many economists expect rising borrowing costs to hurt spending more strongly in the coming months, threatening US growth.
Earlier this month, US recession next year was "almost as likely" as their baseline projection of weak growth, according to the minutes of the Nov. 1-2 meeting of policy makers, released on Wednesday. This represented a downgrade in the economic outlook due to the tightening of financial conditions that occurred in the autumn.
European economies will face stronger winds in the coming months. Russian natural gas giant Gazprom PJSC on Tuesday threatened to further cut exports to Europe via Ukraine starting next week, calling into question one of the last routes for transporting Russian gas to Europe.
Easing COVID-19 restrictions in China is key to a growth recovery expected next year, but the recent surge in infections has raised questions about how quickly this can happen.
“Covid-19 policy set-up is now being challenged by the continued rise in cases, especially in the manufacturing hub in Guangzhou,” said Magdalene Teo, head of Asia fixed income research for Julius Baer. “China is realizing that reopening this winter will not be easy.”
Many forecasters see global production growing about 2% next year. This would be a sharp deceleration compared to this year and well below the average of 3.3% recorded in the decade preceding the start of the Covid-19 pandemic, but which would still produce a small increase in per capita production.
While many of the world's wealthiest countries are expected to have a weak start to 2023, economists are wary of forecasting a global recession.
“While we do not formally forecast a global recession from a strictly technical point of view, it will look like a recession for much of the world economy,” said Marcelo Carvalho, global head of economics at BNP Paribas.
In practical terms, this means that the hardships that many nations, businesses and consumers around the world have experienced this year – with strong regional variations – are not over.
The United States is expected to earn little next year. The Organization for Economic Co-operation and Development expects US economic output to grow at an annual rate of 0.5% in 2023, down from an estimated 1.8% in 2022. Economists polled by The Wall Street Journal they believe that US gross domestic product will grow at an annual rate of 0.4% in 2023 and see a growing possibility of a recession next year.
Europe appears able to avoid the worst outcomes of energy outages. A mild October and high levels of gas storage make it less likely that European factories will face energy rationing. As a result, Barclays economists expect a 1.3% drop in gross domestic product, lower than the worst-case scenario of a 5% drop.
While conditions could start to improve next year, economists have warned that the global economy remains in a precarious position.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/recessione-andamento-wsj/ on Sun, 27 Nov 2022 06:51:24 +0000.