Cost of living crisis stifles post-Covid recovery

Economists warn that a global recession is imminent as the rising interest rates and cost of living crisis are eating away at any remaining strength in the post-Covid recovery.

The British economy has suffered its worst slump in over two-and-a-half years. This is due to a “severe” decline in manufacturing, and a decrease in the amount of money people have to spend on service. Economists are warning that Britain is in danger of a recession.

According to S&P Global’s influential purchasing managers’ survey (PMI), the sector contracted in August for the first since January due to a shrinking demand.

James Smith, economist at ING said: “The economic situation appears to be changing from a very modest state of growth to one of stagnation, and possibly even a modest recession.”

The survey also found that the US economy is also in recession.

The recovery from Covid is now waning, and this has increased the risk of a recession worldwide.

Germany is leading the way in the eurozone’s worsening economic situation. The PMI shows the worst performance of the private sector since 2020.

Rory Fennessy, an Oxford Economics economist, said that the European Central Bank will be forced to lower interest rates by the European Central Bank due to the fear of recession.

He said that with the Eurozone Composite PMI in contractionary territory now for three consecutive month and signs emerging that the slowdown has become broader, the risk of the eurozone slipping into a recession in the third quarter is increasing.

Citi economists said that the US must face a recession to bring prices under control. “Getting inflation to 2pc requires a recession and increased unemployment.” This is the clear lesson that we learn from previous episodes of high prices.

Freya Beamish is the chief economist of TS Lombard. She said that a global economic recession was imminent.

“We expect a global recession. The data in Europe is grim and hopes of a recovery in China have been misplaced. The two blocks are interdependent, so Eurasia as a whole will be in recession,” said she. She added that the US would likely fall into recession by next year due to the rising interest rates and the weakening of the American consumer.

Nomura, a Japanese investment bank, predicts recessions for the US and Japan. It also warns the UK and Eurozone will be in a weakened state.

It could be we are facing a global recession. The rate increases we’ve seen may have triggered this, said Goerge Buckley.

It may be that, over the past 30 years, the world’s economy has been preparing itself for ever-lower rates of interest. This will be undermined by a substantial increase in interest rates within a very short time.

Ben Gutteridge, Invesco, said that the risk would increase the longer rates remain high.

He said that despite the “consumer-led” resilience of the major economies, they continue to struggle with higher interest rates. This challenge will only get worse as the expiring loans are refinanced with higher and more punishing rates.

The prospect of a global economic recession is still a concern as we look forward to 2024. However, our main view is that such a recession would be likely shallow.

Nathan Thooft, at Manulife Asset Management, said that a global economic recession is “very probable”.

It takes some time for the higher interest rates to start to take effect. He said that the delay is usually between a year and 18 months.

“We are nearing the end of this period, where you will start to notice it quite a lot more. In my opinion, I think we’ll see a recession.”