Business surveys released Wednesday pointed to declines in
output across the U.S. and Europe’s largest economies in November. But the
figures and other economic readings pointed to a mixed outlook, with some parts
of both economies continuing to show resilience despite high inflation and
rising interest rates.
In China, the world’s second-largest economy, the outlook is
highly uncertain as the country faces a surge in Covid-19 cases. Economists
expect a rebound in growth next year as Beijing attempts to ease tough pandemic
policies.
A tight U.S. labour market and still strong household
balance sheets are supporting consumer spending, the economy’s main engine. A
healthy consumer helped power retail sales in October and could keep the
world’s largest economy growing at the end of this year. The U.S. outlook
depends in part on how it weathers the Federal Reserve’s interest-rate
increases aimed at cooling inflation that is running near a 40-year high.
Europe is experiencing less economic disruption from
Russia’s decision to limit energy supplies than analysts earlier feared. Many
households and businesses in the region are adapting by, for instance, cutting
back on energy consumption, said Adam Posen, president of the Peterson
Institute for International Economics. European governments also distributed
larger-than-anticipated sums of fiscal support to households to help address
rising energy and food costs, he added.
“We’re going to end up with more than 75% of the world’s
economy actually doing pretty well,” Mr. Posen said. The U.S. and European
Union “are likely to have relatively short, not terrible recessions and return
to growth possibly by as early as the fourth quarter of 2023.”
Still, many developing countries are falling behind. David
Malpass, the head of the World Bank, earlier warned developing countries face
an additional economic risk: Policies adopted by advanced economies to address
inflation and economic slowdown could leave insufficient capital for poorer
nations.
S&P Global said its composite output index for the U.S.,
which includes services and manufacturing activity, fell to 46.3 in November
from 48.2 a month earlier, among the quickest contractions since 2009. An index
below 50 signals contracting economic activity, while above 50 signals growth.
“Companies are reporting increasing headwinds from the
rising cost of living, tightening financial conditions—notably higher borrowing
costs—and weakened demand across both home and export markets,” said Chris
Williamson, chief business economist at S&P Global Market Intelligence.
U.S. businesses reported that inflationary pressures eased
in November, however, with prices for materials and freight costs cooling.
The economic cost of higher energy prices was evident in
surveys of purchasing managers at European businesses, which recorded another
month of declining activity in November. S&P Global said its composite
output index for the eurozone rose to 47.8 in November from 47.3 in October,
but remained below the 50 mark that distinguishes a contraction from an
expansion.
The global economic outlook remains highly uncertain. One
big question in the U.S. is how quickly inflation comes down. The pace at which
it does will help determine how high the Fed raises interest rates and how long
it keeps them there. The central bank has raised rates at the fastest pace
since the 1980s this year. Many economists expect higher borrowing costs to
hurt spending with greater force in the coming months, threatening U.S. growth.
Fed staff early this month saw a U.S. recession next year
“as almost as likely” as their baseline projection of weak growth, according to
minutes of the policy makers’ Nov. 1-2 policy meeting released Wednesday. That
represented a downgrade of the economic outlook due to the tightening in
financial conditions that had occurred this fall.
Europe’s economies face the strongest economic headwinds in
the months ahead. Russian natural-gas giant Gazprom PJSC on Tuesday threatened
to further throttle exports to Europe via Ukraine from next week, putting in
question one of the last remaining routes for Russian gas to reach Europe.
A reduction in Covid-19 restrictions in China is key to an
expected rebound in growth there next year, but the recent surge in infections
has raised questions about how quickly that can proceed.
“This fine-tuning of its Covid-19 policy is now being tested
as cases continue to climb, especially in its manufacturing hub of Guangzhou,”
said Magdalene Teo, head of fixed income research in Asia for Julius Baer.
“China is realising that reopening this winter will not be easy.”
Many forecasters see global output rising by around 2% next
year. That would be a sharp deceleration from this year and well below its 3.3%
average in the decade leading up to the start of the Covid-19 pandemic, but
still producing a small rise in output per person.
Even with a weak start to 2023 expected in many of the
world’s richest countries, economists are wary of forecasting a global
recession.
“Even though we do not formally forecast a global recession
from a narrow technical viewpoint, it will feel like one for large parts of the
global economy,” said Marcelo Carvalho, global head of economics at BNP
Paribas.
In practical terms, this means the hardship many nations,
businesses and consumers around the world have experienced this year—with
strong regional variations—isn’t over.
The U.S. is expected to eke out meagre gains next year. The
Organization for Economic Cooperation and Development projects U.S. economic
output will grow at an annual rate of 0.5% in 2023, down from an estimated 1.8%
in 2022. Economists surveyed by the Wall Street Journal think U.S. gross
domestic product will grow at an annual rate of 0.4% in 2023, and they see a
rising chance for a recession in the next year.
Europe seems likely to avoid the worst outcomes from energy
disruptions. A mild October and high levels of gas storage make it less likely
that Europe’s factories will face energy rationing. As a result, economists at
Barclays expect a 1.3% drop in gross domestic product there, less than their worst-case
scenario of a 5% decline.
While conditions could start improving next year, economists
warned the global economy remains in a precarious position.
“The risks that things could go wrong are increasing
compared to where they were in the past few months,” said Alvaro Pereira,
acting chief economist at the OECD. - The World Street Journal