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OpinionComment
David Brown
David Brown

Macroscope | Looming US recession puts pressure on others to get growth policies right

  • With the US in trouble and world trade growth slowing, major exporters such as China and Germany must compensate with extra domestic reflation
  • Global growth needs careful nurturing by policymakers, and a return to much easier economic policies should be a priority

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US President Joe Biden speaks about rebuilding American manufacturing at the groundbreaking of the new Intel semiconductor manufacturing facility in New Albany, Ohio, on September 9, 2022. Crumbling levels of business confidence and a persistently inverted Treasury yield curve are just some of the indicators that a recession is imminent. Photo: Reuters
David Brown
It’s not a question of if, but when. Recession is an inevitability in the United States and in several other major industrial nations which are on the brink of two successive quarters of negative growth this year. The problem is that the scope for remedies is limited, with global monetary policy given over to fighting inflation and government budgets severely overstretched from the Covid-19 pandemic.
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For a major manufacturing country such as China, which hopes for healthy world trade growth to fuel faster export sales, it could hamper plans for a GDP target of around 5 per cent this year. With global recovery in jeopardy, even greater emphasis is being placed on domestic-driven growth and the need for a much bigger policy push by Beijing.
Easier credit, lower interest rates and even more budget stimulus will be needed to keep growth plans on track. What applies to China is just as true for the advanced economies, if the world is to be spared a deeper downturn this year. The policy spigots must be reopened again, and quickly.
It’s clear from the current data that global economic confidence is starting to slide. Business activity indicators are weakening, inflation has peaked, interest rates are too high and governments are under pressure to rein in excessive deficit spending after years of fiscal overload. The shock waves from recent banking collapses have hardly helped matters, with many global business confidence pointers taking a turn for the worse recently.

The purchasing managers’ index (PMI) for global manufacturing, published by JP Morgan and S&P Global, dropped back to 49.6 in March, below the 50 mark that is the threshold between expansion or contraction in factory-sector business activity. It’s an ominous sign for those hoping for faster global recovery.

A worker welds steel for the construction of the Eco Edison vessel at a shipyard in Houma, Louisiana, on April 4. When completed next year, the Eco Edison is expected to be the first US-built vessel to service offshore wind farms. Photo: Bloomberg
A worker welds steel for the construction of the Eco Edison vessel at a shipyard in Houma, Louisiana, on April 4. When completed next year, the Eco Edison is expected to be the first US-built vessel to service offshore wind farms. Photo: Bloomberg

In the US, business confidence continues to go from bad to worse. The benchmark Institute for Supply Management’s manufacturing PMI slipped even further below the boom/bust line, down to 46.3 in March. This is the lowest since the short-lived 2020 US recession. It suggests another recession could on the cards soon.

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