War, sickness, famine. The problems facing the global economy are beginning to sound apocalyptic. Given the adverse events facing the global economy, it’s reasonable to ask if it can still grow. Tom Fairless analyses potential global economic growth in The Wall Street Journal, writing:
Economic growth is slowing in large parts of the globe as businesses struggle to navigate a looming slowdown in China and surging prices aggravated by Russia’s war in Ukraine.
Surveys of purchasing managers conducted over recent weeks point to weakening growth in major economies such as Germany and the U.K. in April, as activity remains solid in other parts of Europe and Asia.
While service businesses are benefiting as Covid-19 restrictions are removed and households spend some of the savings they amassed during the pandemic, manufacturing firms are wrestling with higher prices and supply-chain disruptions.
The war in Ukraine dealt a stagflationary blow as the global economy was rebounding strongly, though unevenly, from the shock of the pandemic. The rapid recovery, bolstered by aggressive fiscal and monetary stimulus, has driven down unemployment in advanced economies while adding to pressure on global supply chains strained by intermittent Covid-19 outbreaks. All that has pushed inflation to the highest levels in several decades on both sides of the Atlantic.
In Germany, Europe’s largest economy and a manufacturing powerhouse, growth slowed to a three-month low in April, according to surveys by S&P Global out Friday. The first fall in manufacturing output since June 2020 offset an acceleration of service-sector growth to the fastest pace since August. The autos sector was particularly hard hit, recording a steepening and marked loss of output, the surveys found.
Still, the surveys pointed to solid growth overall in the 19-nation eurozone. That could encourage the European Central Bank to move ahead with aggressive interest-rate increases aimed at containing skyrocketing inflation, economists said. ECB officials have signaled that they could start to increase rates as soon as July.
Such moves add to headwinds that are ricocheting through global financial markets and weighing on asset prices. Borrowing costs are already rising sharply around the world as investors anticipate rate rises from the Federal Reserve and other major central banks.
The International Monetary Fund reduced Tuesday its forecast for global economic growth this year by nearly a percentage point, warning that the war in Ukraine was adding to the economic strains wrought by the pandemic. The institution warned that recent lockdowns in key manufacturing and trade hubs in China would likely compound supply disruptions elsewhere.
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