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Recession signal also in PMIs: Manufacturing shrinks

Final Global Manufacturing PMI data for August, released by S&P Global, showed that the sector continued to contract in August after July. Survey results indicate that recession risks are gradually increasing.

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Global Manufacturing PMI data released by S&P Global revealed that rising energy prices and inflation continued to tighten production in August, and recession risks – especially for the Euro Area – are increasing. With the expectation that Nord Stream 1 will reopen on September 2, although the benchmark natural gas price in Europe decreased to the TTF 222 Euro/MWh level on Thursday, the tightening of monetary policies, the still very high prices in energy and food, especially in the Euro Zone. continues to negatively affect the global manufacturing sector.

New orders down, stocks up

The S&P Global Euro Zone Manufacturing PMI index fell slightly to 49.6 in August from 49.7 in July and remained below 50, which indicates contraction. JP Morgan’s Global Manufacturing PMI fell from 51.1 in July to a 26-month low of 50.3. In the S&P Global report, which states that global manufacturing production contracted in August, it was stated that only 10 of the 30 countries surveyed increased, and these increases were very marginal increases. Indicators following the outlook for the upcoming period in the survey results for the Euro Area point out that “new orders have decreased, raw material stocks are on the rise again, factory accumulations have decreased and finished product stocks have increased at a ‘record speed’”. Thomas Rinn, Director of Global Industries at consulting firm Accenture, said: “Recession-related challenges are mounting as economies suffer from high inflation, growing uncertainties and rising interest rates.” According to Rinn, current macroeconomic pressures and worsening livelihood crises “would not be a surprise if they lead to continued contraction in activity in the months ahead”.

Fitch: Recession more likely now

Fitch Ratings said in a statement released on Thursday that Russia’s complete shutdown of Nord Stream 1 was “increasingly a plausible possibility and a recession in the Eurozone now looks more likely”. Capital Economics also draws attention to the fact that unemployment, which fell to 6.6 percent in the Euro Zone, is the only good data and makes the assessment that “A tough winter is waiting for the region and a recession is approaching”. Concerns are also expressed that the global economy regarding the increasing Chinese quarantines may cause new squeezes in supply chains.

Dollar hits new 20-year high

While the manufacturing sector in the USA was in a better condition compared to the Euro Area, employment and new orders grew in August, the dollar brought the dollar to a new peak of 20 years, while the euro/dollar parity fell to the level of 0.9933. The dollar index also exceeded 109,770, the highest peak since September 2, 2002, and rose to the level of 109,812, last seen on June 3, 2002. Cleveland Fed President Loretta Mester said on Wednesday:He said that he predicts that the rates will rise above 4 percent in early 2023 and that this will reduce economic growth to below 2 percent, but he does not expect the Fed to cut any interest rates throughout 2023. The Fed aims to reduce inflation by pulling the real interest rate (policy rate – inflation) to positive. On the other hand, on the side of the ECB, which made the interest rate positive for the first time in 8 years at its last meeting, an interest rate hike may worsen the situation. On the board of the Morgan Stanley ECB, 75 bps people will win. The continuation of the war-induced energy crisis continues to put pressure on the euro/dollar parity, and a strong rise in the parity is not expected until the energy crisis is resolved.

 

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“120,000 service companies could go bankrupt in Italy”

In the reports published as a result of the surveys made with purchasing managers, it is seen that the manufacturing activities in the Euro Area are at their lowest level in 26 months. The Eurozone is not the only place where manufacturing has contracted. In some economies, August Manufacturing PMI data are as follows: China 49.5; US 52.5; Germany 49.1; England 47.3; Italy 48; Spain 49.9; France 50.6; Canada 48.7. Italy’s business association Confcommercio, in a warning issued on Wednesday, said that “120,000 Italian companies operating in the service sector could go bankrupt in the next 10 months, which would mean 370,000 job losses.”

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