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Spokane, Washington  Est. May 19, 1883

Business activity slumps globally, feeding recession concerns

The chassis and battery packs of a Volkswagen ID.5 electric sports utility vehicle are shown on the assembly line in Zwickau, Germany, on Jan. 27, 2020.   (Bloomberg )
By Alexander Weber, Enda Curran </p><p>and Reade Pickert Bloomberg

Economic activity weakened from the U.S. to Europe and Asia, reinforcing concerns that soaring prices and the war in Ukraine will tip the world into a recession.

U.S. business activity contracted for a second consecutive month in August, falling to the weakest level since May 2020, S&P Global data showed Tuesday.

Activity in Asia slumped, and output in the 19-nation euro zone also fell as record energy and food inflation saps demand and more sectors succumb to the darkening outlook.

The U.S. figures pointed to weaker demand at both manufacturers and service providers as rising interest rates and high inflation weighed on consumers.

New orders shrank for the second time in three months, and employers reduced hiring.

In Europe, manufacturing drove the drop, but a postlockdown rebound in services like tourism almost ground to a halt.

Against a backdrop of elevated inflation and a slowdown in the global economy, central bankers from around the world are gathering this week at the annual Jackson Hole, Wyoming, retreat.

U.S. Federal Reserve Chair Jerome Powell will speak on the economic outlook Friday.

The U.K.’s purchasing managers’ index managed to remain above the 50 level that separates expansion from contraction, but recorded an unexpectedly large plunge in factory activity.

Over in Asia, Japanese output shrank as a resurgence in COVID-19 cases further depresses demand that was already struggling under the weight of surging inflation.

Australia’s services sector contracted for the first time in seven months, but it was offset somewhat by an uptick in tourism.

In China, the government’s ongoing commitment to COVID Zero and a worsening real-estate slump are weighing on consumer and business confidence.

The data paint a bleak picture for the global economy, with most central banks still focused on taming inflation by raising borrowing costs.

And while rate hikes will add to the pain of the downturn, they may not even bring excessive price gains back to where they were before this spike, according to investors including Pacific Investment Management Co.

For the euro area, the numbers “point to an economy in contraction during the third quarter,” S&P Global economist Andrew Harker said Tuesday.

“Declining output is now being seen across a range of sectors, from basic materials and autos firms through to tourism and real estate companies as economic weakness becomes more broad based in nature,” Harker said.