Another 'Stagnation' Warning Surfacing... Business Activity Slumps in the US and EU as Well

[Asia Economy New York=Special Correspondent Joselgina] Indicators have emerged showing that corporate activities in major countries across the United States, Europe, and Asia are simultaneously contracting. Amid soaring inflation and the impact of interest rate hikes weakening consumer demand, ongoing supply chain disruptions are once again sounding alarms of economic slowdown.

On the 23rd (local time), S&P Global announced that the preliminary August Composite Purchasing Managers' Index (PMI) for the U.S. fell 2.7 points from the previous month (47.7) to 45.0. This is the lowest level since May 2020 and marks the second consecutive month below the baseline of 50, which indicates contraction.

The PMI, a representative leading economic indicator, is compiled by surveying purchasing managers at various companies on new orders, inventories, shipments, employment, and other factors. A PMI below 50 indicates economic contraction, while above 50 indicates expansion.

The U.S. Composite PMI, combining manufacturing and services, has been declining for five consecutive months, with a total drop of 12.7 points during this period. Particularly, a sharp contraction was confirmed in the services sector. The Services PMI fell 3.2 points from the previous month to 44.1, the lowest in 2 years and 3 months. The Manufacturing PMI showed expansion at 51.3 but has been falling for four consecutive months, leading to expectations that it will soon return to contraction. S&P Global’s Chief Economist Sian Jones commented, "Demand has weakened due to interest rate hikes and high inflationary pressures."

The situation is even worse in the Eurozone, which is facing an energy crisis triggered by Russia. The Eurozone Composite PMI for August dropped to 49.2 from 49.9 in the previous month, marking the lowest level in 18 months. The Manufacturing PMI has fallen for three consecutive months to 49.7, entering contraction territory. Although the Services PMI (50.2) remained above 50, it recorded its lowest level in seven months, indicating a precarious situation.

Looking at individual countries, Germany, which has played a leading role in the Eurozone economy, experienced the sharpest contraction in corporate activity since June 2020. France also turned downward for the first time since the pandemic. Christoph Weil, Senior Economist at Commerzbank, noted, "The fact that the PMI declined in August following July means the possibility of a Eurozone recession in the second half of the year is that much greater."

Asia is no exception. Japan’s Manufacturing PMI, released the day before, hit its lowest level in 19 months. China is also struggling with corporate activities hampered by COVID-19 lockdown policies and a real estate market slump. Globally, companies are increasingly scaling back hiring plans due to rising costs from higher raw material prices and transportation expenses.

Meanwhile, the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) have clearly stated their stance to continue raising interest rates to lower inflation, which is expected to heighten concerns about future economic downturns. Bloomberg reported, "As corporate activities weaken in the U.S., Europe, and Asia, concerns are growing that soaring inflation and the Ukraine war will push the world into a recession. Economic data paint a bleak picture for the global economy, but most central banks remain focused on raising interest rates to curb inflation."

This content was produced with the assistance of AI translation services.