Economic Slowdown due to global financial crisis and covid 19
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  • PMIs suggest global economy heading into a serious slowdown
  • S. business activity sees the first contraction in 2 years
  • Eurozone business activity shrinks in July
  • China lockdowns and the Ukraine crisis further disrupt supply chains

The global economy seems more and more likely to be approaching an acute slowdown, just as the highest inflation in a generation causes central banks to hawkishly reverse the ultra-loose monetary policy approved during the pandemic to promote growth, data showed on July 22.

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Business activity in the U.S., the world’s biggest economy, shrank for the first time in about two years this month, activity in the euro zone decreased for the first time in more than a year, and growth in Britain stood at a 17-month low, purchasing managers’ surveys said on Friday.

In a further gloomy sign for the global economy, Japan’s government is anticipated to steeply slash its forecast for domestic growth. Meanwhile, the conflict in Ukraine and China’s strict COVID-19 lockdowns have further hurt global supply chains that had not yet bounced back from the pandemic.

S&P Global on Friday said that its initial – or “flash” – U.S. Composite PMI Output Index had plunged further than estimated to 47.5 in July from a final reading of 52.3 last month. That was the fourth consecutive monthly slump and was prompted by weakness in the services sector, which shrank enough to cancel out slight growth in manufacturing.

With a reading below 50 signaling business activity had decreased, the report will spark the vocal debate over whether the U.S. economy is back in – or approaching – a recession after recovering sharply from the slowdown in early 2021 at the beginning of the COVID-19 pandemic.

Chris Williamson S&P Global Chief Business Economist said in a statement:

“The preliminary PMI data for July points to a worrying deterioration in the economy. Excluding pandemic lockdown months, the output is falling at a rate not seen since 2009 amid the global financial crisis.”

In the eurozone, business activity suddenly plummeted this month caused by an expediting downturn in manufacturing and a near-dampening of the service sector growth as growing costs forced consumers to reduce spending, a survey showed.

S&P Global’s flash Composite Purchasing Managers’ Index (PMI) for the eurozone, seen as a good gauge of overall economic health, tumbled to 49.4 this month – the lowest since February last year – compared with 52.0 last month, well below all forecasts in a Reuters poll that had forecast a slighter fall to 51.0.

Business across the eurozone kept reporting an escalation in wage growth and rising inflation pressures, even as the overall growth outlook becomes dimmer and dimmer, the European Central Bank (ECB) said on Friday, based on a survey of 71 large firms.

Inflation in the currency union was 8.6% in June, official data showed, and on July 21 the ECB hiked interest rates by more than anticipated, confirming that concerns about rampant inflation now overtake growth considerations.

The U.S. Federal Reserve, combating four-decade high inflation, is expected to implement another large 75 basis point interest rate rise at its meeting later this week.

The Reuters poll provided median predictions of a 40% likelihood of a U.S. recession over the coming year and a 50% probability of one occurring within two years, a great improvement from a June poll.

Japan and China continue to be exceptions by maintaining monetary policy loose, a sign their economies – the third- and second-biggest in the world – are lacking the strength to neutralize the weaknesses in other parts of the globe.


Worries over a global downturn are hindering Asia’s recovery prospects with factory activity growth stalling in Australia and Japan, maintaining pressure on policymakers to assist their economies.

Japan’s manufacturing activity increased at the slowest pace in 10 months in July, its PMI survey showed on Friday, not promising for an economy battling to shake the wounds from the pandemic.

Marcel Thieliant, a senior Japan economist at Capital Economics, said on Japan’s PMI:

“July’s PMIs suggest that the manufacturing sector is slowing as demand weakens, while the latest COVID-19 is starting to hit the services sector.”

Bank of Japan's headquarters in Tokyo

Factory activity also stalled in Australia with the index tumbling to 55.7 this month from 56.2 last month, a separate survey showed in the past week.

China’s economic growth reduced sharply in the second quarter, induced by widespread COVID lockdowns and indicating continuous pressure over coming months from a grim global outlook.

The downturn in the world’s second-biggest economy, together with the fallout from hawkish central bank tightening, pushed the Asian Development Bank to trim its growth forecast for the region on July 21.

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