Inflation, Rising Rates Curb Global Economic Growth
Kanebridge News
Share Button

Inflation, Rising Rates Curb Global Economic Growth

Slower reported growth due to rising prices and concerns over interest rates, survey finds.

By Paul Hannon
Thu, May 26, 2022 11:22amGrey Clock 3 min

Growth in the U.S. and global economies slowed in May as high inflation and rising interest rates dented demand, business surveys said Tuesday.

Business activity at services businesses in the U.S., eurozone, U.K. and Australia all grew more slowly in May amid rising prices, according to S&P Global surveys. The firm’s purchasing managers index surveys also reported Tuesday that factories in major global economies face supply-chain disruptions related to Covid-19 surges and the Ukraine war, as well as higher fuel costs and rising wages.

Separate U.S. figures on Monday pointed to slower growth in a segment of the housing market. The Commerce Department said purchases of newly built single-family homes declined in April for the fourth straight month, dropping 16.6% in April from the prior month to a seasonally adjusted annual rate of 591,000. That marked the slowest pace of sales since April 2020 at the start of the pandemic.

New-home sales are a relatively narrow slice of all U.S. home sales, and sales figures can be volatile and subject to revisions. Still, the drop adds to signs the housing market is slowing amid record home prices and rising mortgage rates.

The global economy faces a series of obstacles this year, ranging from Covid-19 lockdowns in China, soaring energy and food prices, Russia’s invasion of Ukraine and a broadening drive by central banks to combat high inflation by increasing borrowing costs.

Some businesses are planning for a significant slowdown in growth or economic contraction.

Electronics retailer Best Buy Co. reported falling sales and profits for the latest quarter and said its results for the current fiscal year will be worse than it had previously predicted amid increased sales promotions and higher supply-chain expenses. Abercrombie & Fitch Co. swung to a quarterly loss, hurt by higher freight and product costs.

Retailers have posted mixed results for the first quarter. Last week, Walmart Inc. and Target Corp. posted weaker-than-expected earnings.

The surveys of purchasing managers at businesses in some of the world’s largest and richest economies indicate that activity continues to be supported by the easing of restrictions on the services sector as Western societies learn to live with Covid-19, with sectors such as tourism experiencing a strong recovery. Still, high inflation, geopolitical tensions and rising interest rates are clouding the outlook.

In the U.S., S&P Global said its composite purchasing managers index—which measures activity in both the manufacturing and services sectors—was 53.8 in May, down from 56.0 in April and the weakest rate of growth in four months. Separately, S&P Global said its index for the eurozone’s services and manufacturing sectors fell to 54.9 in May from 55.8 in April. A reading above 50.0 points to an expansion in activity, while a figure below that threshold points to a contraction.

While the surveys point to continued growth in the second quarter, they appear to have exaggerated the strength of the global economy during the first three months of the year.

According to the Organization for Economic Cooperation and Development, economic output in its 38 members was just 0.1% higher in the three months through March than it was in the final quarter of 2021, a sharp slowdown from the 1.2% growth recorded in the three months through December.

Economists at Capital Economics say that, based on their history, the PMIs pointed to growth in rich countries of around 0.5%.

“This partly reflected volatility in imports and inventories and the effects of Covid restrictions, all of which should fade from now on allowing the PMIs to give a more accurate steer,” wrote Ariane Curtis in a note to clients.

Facing the full brunt of the jump in energy prices triggered by Russia’s attack on Ukraine, European policy makers are preparing for tough economic times ahead.

“It’s now very clear that the economic toll of this war is world-wide,” said Irish Finance Minister Paschal Donohoe after heading a meeting of eurozone treasury chiefs Monday. “High prices and disruption to food supplies are rippling across the world with very serious consequences for the most vulnerable in our societies.”

According to the surveys of purchasing managers, the U.K. has suffered the sharpest blow to activity in the wake of the invasion. S&P Global said its PMI for the country slumped to 51.8 in May from 58.2 in April to hit its lowest level in 15 months. Inflation hit a four-decade high in April as home energy prices surged.

“In the U.K., we are facing a very big negative impact on real incomes caused by the rise in prices of things we import, notably energy,” said Andrew Bailey, governor of the Bank of England, in a speech Monday. “We expect that to weigh heavily on demand.”

Citing the impact of the conflict on energy and food prices, the United Nations last week lowered its forecast for global economic growth in 2022 to 3.1% from 4%, and its forecast for U.S. economic growth to 2.6% from 3.5%.

Business leaders share those worries. A survey conducted by the Conference Board and released Tuesday found chief executive officers at 56 of Europe’s leading companies had become much more gloomy about their prospects in the six months since the last poll. The measure of confidence fell to 37 from 63, with a reading below 50.0 indicating that more CEOs are pessimistic than optimistic about the outlook.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 24, 2022.

MOST POPULAR

Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual

Related Stories
Lifestyle
Australia’s best builders take out top awards
By Robyn Willis 29/11/2022
Lifestyle
The Golden Keys: Inside the High-Stakes World of the Luxury Concierge
By JOHN SCOTT LEWINSKI 29/11/2022
Lifestyle
How Student-Loan Debt, or Not Having It, Shapes Lives
By JOE PINSKER 29/11/2022
Australia’s best builders take out top awards

The country’s best builders downed tools for the national awards for the Master Builders Association, their first live awards night since COVID

By Robyn Willis
Tue, Nov 29, 2022 2 min

Sydney’s newest skyscraper has collected yet another award, this time for the builder.

Hot on the heels of being named International High Rise of the Year in Frankfurt, Sydney’s Quay Quarter Tower is once again on the winner’s podium at the weekend’s Master Builders Assocation’s  National Excellence in Building and Construction Awards.

Multiplex Constructions won the top award, the National Construction Master Builder of the Year for the 50-storey Quay Quarter Tower at the awards hosted by Sylvia Jeffreys and Peter Stefanvoic. 

MBA CEO Denita Wawn singled out the exceptional work on the landmark building, which was a joint project between Danish architectural firm 3XN and Australian architectural firm, BVN.

“The 50-storey Quay Quarter Tower is the catalyst for the transformation of Sydney’s iconic Circular Quay, supporting Sydney’s future as a green, global and connected city,” she said. “Multiplex was required to overcome key construction challenges of building movement, complex demolition and strengthening works, large cantilevered elements, and concurrent construction across multiple fronts.”

In other top categories, the Toyota National Young Builder of the Year went to Andrew Kerr, founder of AusCon NT, from the Northern Territory.

“Born and raised in Alice Springs, Andrew is passionate about the local community of Alice Springs and aims to build a lasting reputation through supporting local businesses and working on construction projects for the betterment of the local community and its people,” Ms Wawn said.

Perth builder Spadaccini Homes took out the award for National Residential Master Builder of the Year for the Hirniak residence, while Vos Construction & Joinery was awarded the 2022 National President’s Award for their work on the My State Bank Arena in Hobart.

Tasmania was also home to the National Apprentice of the Year, Zac Smith.

“Zac’s outstanding efforts on site were also reflected by his TAFE results,” Ms Wawn said. “His understanding of the importance of WHS and respecting others on a work site saw him become a sought-after team member and offered additional project responsibilities.”

He was not at the award ceremony on the weekend because his wife was giving birth.

MOST POPULAR
Mornington Peninsula

The coastal area southeast of Melbourne is providing a permanent escape as the pandemic endures.

The market is forced to confront the impact of COVID lockdowns.

0
    Your Cart
    Your cart is emptyReturn to Shop