US Treasury Secretary Jane Yellen warned on Tuesday that “time is running out” to avert disaster.
Global economy shows further signs of slowing, as does recovery in China post-Covid is weakening and Germany’s struggling industrial sector threatens to push Europe into recession.
These weaknesses are becoming increasingly apparent as the ever-resilient US economy comes under pressure from the looming banking crisis, as well as the Republican-Democrat fight over the debt ceiling.
Treasury Secretary Jane Yellen warned on Tuesday that “time is running out” to avert disaster.
The latest data suggests that key elements of the positive scenario for a global recovery are not unfolding as hoped.
The restart of the Chinese economy is running out of fuel – while the mild winter in Europe is not enough to revive the German industrial base.
“The optimism for growth seen at the start of the year has clearly given way to realism or simply disillusionment,” said Carsten Brzeski, global head of macroeconomics at ING.
“China and Europe are already losing momentum, and with everything going on in the United States, the second half of the year isn’t looking any better.”
What Bloomberg Economics says…
“A mix of economic data showed weakness in Chinese and European powerhouse Germany.
On the other hand, the United States resists.
We believe that the bad news regarding China’s recovery will have some momentum.
Additionally, Fed hikes, bank failures fueling the credit crunch, and risks associated with the debt ceiling could reverse the trend…” says its economist BloombergTom Orlik.
Chinese data released on Tuesday (May 16) showed that industrial production, retail sales and investment grew at a much slower pace than expected in April.
The youth unemployment rate jumped to 20.4%!
“Save the Day”
The data confirms that China’s restart is not boosting global demand as many had hoped, said Hao Hong, chief economist at Develop the investment group.
Continued weakness in the real estate sector and Chinese exporters’ order books will not boost confidence.
“We need the Chinese consumer to save the day,” Hong said.
In Germany, investor confidence fell for a third month, reigniting fears of recession.
The Institute’s Expectations Index ZEW it fell to -10.7 in May from 4.1 in April.
Even before that, an unexpected drop in industrial production had raised fears that Europe’s biggest economy had already slipped into recession.
Also International Monetary Fund cut its global growth forecast last month, predicting growth of 2.8% this year and 3% in 2024.
On Tuesday, the Fund warned that tight monetary policy and an upward adjustment in energy prices were weighing on Germany.
He expects economic growth to “remain close to zero in 2023” before gradually strengthening over the next three years.
As the world’s largest economy continues to defy recession forecasts — U.S. retail sales rose in April, suggesting consumer spending is holding up — headwinds are building.
The failure of several regional banks makes access to credit difficult for small businesses and households.
Economist polls indicate a 65% chance of a recession in the next 12 months.
As the global economy weakens, central banks can provide some relief, according to Mark Zandi, chief economist at Moody’s Analytics.
Most monetary authorities are nearing the end of tightening cycles amid signs that inflation has peaked, he said, while strong labor markets and household finances will help curb growth. growth.
“It will be a tough year for the global economy,” Zandi said.
“But with reasonably good central bank policy, we will avoid recession.”
Investors are already worried about the outlook, with fund manager sentiment being the most bearish this year, according to the latest survey from Bank of America Corp.
Traders are betting that a slowdown will force central banks, including the Federal Reserve, to cut interest rates later this year.
Swap markets point to cuts of 50 basis points by December in the Fed’s benchmark interest rate, which now ranges from 5% to 5.25%.
Darker economic news could be ahead, with warnings from manufacturers that pressures continue to mount, said Janet Mui, head of market analysis at Brewin Dolphin.
“Companies are reporting that orders are slowing down,” he said.
“The slowdown in Chinese export growth is indicative of global demand.”