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Fears of the US recession cloud the picture for Japan and global manufacturing

Image: Reuters Berita 24 English -  As China's COVID-19 limits disrupted supply chains, Japan's factory activity growth dropped to a...

Image: Reuters

Berita 24 English -  As China's COVID-19 limits disrupted supply chains, Japan's factory activity growth dropped to a four-month low in June. Many other Asian countries were also struggling with rising dangers to the outlook from a potential U.S. recession.

Data released on Thursday revealed that Australia's manufacturing activity remained stable this month. These results, along with those for Japan, come before a number of European and American purchasing managers' index (PMI) surveys that are scheduled to be released later in the day.

The figures will be widely watched as financial markets worry about the Federal Reserve's fast interest rate increases and the more aggressive tightening it plans to implement in the coming months, both of which have significantly increased the likelihood of a U.S. recession.

According to Fitch Ratings, which reduced this year's global GDP projection from 3.5 percent in March to 2.9 percent in June, "the global macroeconomic outlook has deteriorated considerably since end-2021."

According to a report released this week, "Stagflation, which is characterised by persistently high inflation, high unemployment, and weak demand, has become the dominating risk theme and a feasible possible risk scenario."

As central banks around the world tighten monetary policy to combat stubbornly high inflation, an increasing number of market participants, including American investment firm PIMCO, are expressing concern about the possibility of a recession.

Recent data from around the world revealed that policymakers are treading carefully as they attempt to quell inflationary pressures without sending their respective economies into a sharp slump.

A clue that high inflation and rising borrowing costs were beginning to impact demand was the unexpected decline in U.S. retail sales in May and the drop in existing house sales to a two-year low.

Unexpectedly, the British economy contracted in April, fueling worries of a sudden recession as businesses lament rising production costs.

Asia's exports from South Korea decreased by about 13% in the first 10 days of June compared to the same period last year, highlighting the growing risk to the region's export-dependent economies.

And while exporters in China experienced strong sales in May thanks to the relaxation of domestic COVID-19 restrictions, many analysts anticipate a more difficult future for the world's second-largest economy as a result of the conflict in the Ukraine and rising raw material prices.

According to the survey released on Thursday, the au Jibun Bank flash Japan Manufacturing PMI decreased to 52.7 in June from 53.3 in May, representing the slowest expansion since February.

As semiconductor shortages and COVID-19 components supply interruptions continued to limit productivity, automaker Toyota Motor Corp. reduced its July global production target by 50,000 vehicles as a symptom of the pandemic's enduring effects.

"Suppliers' delivery times continued to increase last month, but at a slightly slower pace," said Marcel Thieliant, senior Japan economist at Capital Economics, despite the recent easing of lockdowns in China.

The question for Japan will be whether consumption recovers sufficiently from a pandemic-induced slump to counteract incoming foreign headwinds like the anticipated slowdown in the United States, analysts say.

Later on Thursday, the PMIs for France, Germany, the eurozone, Britain, and the United States are scheduled to be released.

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