Fears for global economy as US sinks into recession… and German inflation hits record high
- Officials in Washington said output fell in the second quarter of the year
- That followed decline in first quarter – leaving US economy in recession
- Slump is headache for Fed as it hikes rates in bid to crush soaring inflation
The United States has become the first major economy to tumble into recession.
In a report that sent shockwaves through the global economy, officials in Washington said output fell in the second quarter of the year.
That followed a decline in the first quarter – leaving the world’s biggest economy in recession, which is commonly defined as two consecutive quarters of economic contraction.
Downward trend: In a report that sent shockwaves through the global economy, officials in Washington said output fell in the second quarter of the year
The slump is a headache for the Federal Reserve, America’s central bank, as it hikes interest rates in a bid to crush soaring inflation. And in a further setback for the global economy, official figures in Germany showed inflation hit 8.5 per cent this month, the highest level since reunification more than three decades ago.
Danni Hewson, financial analyst at AJ Bell, said: ‘Inflation is raging like a wildfire, hitting profits, undermining confidence and softening demand.’
The US economy shrank at an annual rate of 0.9 per cent in the second quarter of the year, confounding analyst predictions of 0.5 per cent growth. Coming on the back of the first quarter’s disappointing 1.6 per cent slide, it means the US is now in a technical recession.
The gloomy data came just hours after the Fed unveiled a second mammoth interest rate hike – of 0.75 percentage points – in its battle to tame soaring prices.
Central banks have been bumping up rates at unprecedented speeds, hoping to encourage saving rather than spending to bring inflation down. But officials have worried that this will also throw the Covid recovery into reverse – a fear that seems to have become a reality across the pond.
On a quarter-on-quarter basis – the measure used by most European countries – the US shrank by around 0.4 per cent in the first three months of the year and around 0.2 per cent in the second three months. It is one of the first major economies to have unveiled its second-quarter figures – but it may soon be joined in recessionary territory as other countries publish their own statistics.
France shrank by 0.2 per cent in the first quarter, and while economists are forecasting growth of 0.2 per cent for April to June, traders will be worried by the signs of a deeper-than-expected slowdown in America.
Germany, heavily reliant on Russian gas, is also on the brink of a recession as Moscow cuts off supplies to Europe. Second quarter figures for Germany, France and the wider eurozone are due to be published today.
The White House, citing low unemployment, has maintained that the economy is still strong.
Staff at the National Bureau of Economic Research, who also weigh up a range of factors such as unemployment, have not declared an official recession.
But the data will pile pressure on Joe Biden, who has touted America’s economic strength as one of the successes of his presidency. This week his predecessor Donald Trump told an audience at the America First Agenda summit ‘we made America great again’ when he was in charge.
But he accused the Democrats under Biden of turning the US into a ‘cesspool of crime’ which has become ‘a beggar nation, grovelling to others for energy’.
Biden said: ‘It’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation. But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure. Our job market remains historically strong.’