# The global recession drum beat is getting louder
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-07-28
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Global Recession Risk Indicators - Red-Hot Inflation, Energy
Meta Description: Sharply rising interest rates, red-hot inflation, and energy crisis are fuelling concerns of a forthcoming recession. Learn about key indicators and predictions
URL: https://financedigest.com/the-global-recession-drum-beat-is-getting-louderhtml

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By Sujata Rao, Dhara Ranasinghe and Vincent Flasseur

LONDON (Reuters) – Sharply higher interest rates, red-hot inflation and a prolonged energy crisis are leading to conviction that the world economy is headed inexorably towards recession.

It’s a risk U.S. Treasury Secretary Janet Yellen and [European Central Bank](https://www.financedigest.com/token-inc-launches-london-office-to-answer-demand-from-european-banks.html "Token, Inc. Launches London Office to Answer Demand from European Banks") chief Christine Lagarde have acknowledged even if neither considers it a baseline scenario. Federal Reserve [chief Jerome Powell](https://www.financedigest.com/fed-chief-powells-record-mixed-think-tank-says.html "Fed chief Powell’s record ‘mixed,’ think tank says") rejects the notion..

Paul O’Connor, head of the multi-asset team at Janus Henderson, notes that since 1955 “the U.S. [economy has always experienced a recession](https://www.financedigest.com/german-economy-expected-to-skirt-recession-economy-ministry-report.html "German economy expected to skirt recession – economy ministry report") within two years from every quarter in which inflation was above 4% and unemployment was below 5%, as they are today.

The International Monetary [Fund this week warned inflation and war may push](https://www.financedigest.com/in-renewed-push-spain-to-tender-eu-funds-for-evs-batteries-in-july.html "In renewed push, Spain to tender EU funds for EVs, batteries in July") the world economy to the brink of recession.

Here’s what some key [recession risk indicators say:](https://www.financedigest.com/uk-to-avoid-recession-this-year-but-outlook-still-weak-bcc-says.html "UK to avoid recession this year but outlook still weak, BCC says")

1/ OLD FAVOURITE

The U.S. Treasury yield curve has a track record of predicting recessions, especially when two-year [yields rise](https://www.financedigest.com/stocks-fall-bond-yields-rise-as-focus-shifts-to-fed-rate-outlook.html "Stocks fall, bond yields rise as focus shifts to Fed, rate outlook") above 10-year maturities. The 2/10s [yield curve has inverted](https://www.financedigest.com/world-shares-rise-u-s-yield-curve-inverts-after-strong-jobs-data.html "World shares rise, U.S. yield curve inverts after strong jobs data") before every one of the last 10 U.S. recessions.

The yield gap between the two maturities is around -20 bps, and was recently its most inverted since 2000.

Central [banks are jacking up interest rates](https://www.financedigest.com/the-recent-bank-of-england-meeting-the-biggest-rate-hike-recession-warning-and-the-fallout.html "The recent Bank of England meeting, the biggest rate hike, recession warning and the fallout"). The Fed just delivered a [second 75 basis-point increase on Wednesday to tame 9.1% inflation](https://www.financedigest.com/inflation-in-key-german-states-eases-for-second-month.html "Inflation in key German states eases for second month").

(Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/byvrjwwmnve/chart.png)

![](https://www.globalbankingandfinance.com/wp-content/uploads/2022/07/329.jpg)

2/ GAS-FLATION

Some [investors tie global recession risks](https://www.financedigest.com/institutional-investors-back-shell-board-lawsuit-over-climate-risk.html "Institutional investors back Shell board lawsuit over climate risk") to gas supplies from Russia.

The IMF [says a complete supply](https://www.financedigest.com/ceraweek-europe-gas-supplies-to-stay-tight-2-more-winters-equinor-ceo-says.html "CERAWEEK-Europe gas supplies to stay tight 2 more winters, Equinor CEO says") cut to Europe by year-end and another 30% drop in Russian oil exports would see European and U.S. [growth at virtually](https://www.financedigest.com/augmented-reality-ar-virtual-reality-vr-to-dictate-the-growth-of-temporal-implants-market.html "Augmented Reality (AR)/Virtual Reality (VR) to dictate the growth of Temporal Implants Market") zero.

Global growth could slow to 2% in 2023, it warns, a level effectively amounting to recession given population growth and poor [countries’ need](https://www.financedigest.com/5-countries-you-need-to-have-an-offshore-account-in.html "5 Countries You Need To Have An Offshore Account In") for faster expansion.

[European gas prices have soared](https://www.financedigest.com/analysis-east-europeans-count-their-pennies-for-christmas-as-food-costs-soar.html "Analysis-East Europeans count their pennies for Christmas as food costs soar") 180% already this year.

An “inflationary recession” in Europe this year will ripple outward, asset manager PIMCO said, noting the United States sends a third of its [exports to Europe and relies on European Union](https://www.financedigest.com/explainer-why-malaysia-is-considering-a-ban-on-palm-oil-exports-to-the-european-union.html "Explainer-Why Malaysia is considering a ban on palm oil exports to the European Union") producers for 25% of its imports.

(Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/xmpjoddjgvr/chart.png)

![](https://www.globalbankingandfinance.com/wp-content/uploads/2022/07/328.jpg)

3/ PMI SHOCK

[Purchasing Managers](https://www.financedigest.com/marketmind-purchasing-managers-of-the-world-diverge.html "Marketmind: Purchasing managers of the world, diverge") Indexes are reliable predictors of manufacturing, services, inventories, orders, and therefore future growth. So, the unexpected contraction in U.S. and [euro zone](https://www.financedigest.com/euro-zone-inflation-seen-just-above-ecbs-target-in-2025-poll-shows.html "Euro zone inflation seen just above ECB’s target in 2025, poll shows") July PMIs sparked an investor dash for the safety of bonds.

For Citi analysts, the July [PMIs confirm that Germany is in recession](https://www.financedigest.com/euro-zone-october-pmi-adds-to-evidence-bloc-is-heading-for-recession.html "Euro zone October PMI adds to evidence bloc is heading for recession"), with the euro area not far behind.

Within global PMIs, higher inventories typically signal slower growth, especially if accompanied by a [slide in new orders](https://www.financedigest.com/stocks-slide-oil-jumps-as-russia-orders-troops-to-ukraine-regions.html "Stocks slide, oil jumps as Russia orders troops to Ukraine regions"). Goldman Sachs noted this ratio [hit its lowest level since](https://www.financedigest.com/uk-mortgage-approvals-hit-lowest-since-june-2020.html "UK mortgage approvals hit lowest since June 2020") May 2020 this month.

(Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/zdpxobbanvx/chart.png)

![](https://www.globalbankingandfinance.com/wp-content/uploads/2022/07/327.jpg)

4/ COUNTING COMMODITIES

Copper, a growth bellwether, is down 22% this year.

Dubbed “Dr Copper” because of its record as a boom-bust indicator, the metal has also seen its [price ratio to safe-haven gold hit](https://www.financedigest.com/world-food-prices-hit-record-high-in-2022.html "World food prices hit record high in 2022") an 18-month low.

Standard Chartered said recessionary fears had caused a [fall in base metal prices](https://www.financedigest.com/buy-off-plan-to-beat-stalling-house-prices-and-falling-rental-yields-says-jean-liggett.html "“Buy off-plan to beat stalling house prices and falling rental yields” says Jean Liggett ") and it had revised down its forecasts.

Brent crude prices have also slid for two [straight months](https://www.financedigest.com/spanish-manufacturing-output-down-for-6th-straight-month-in-dec-pmi.html "Spanish manufacturing output down for 6th straight month in Dec -PMI").

(Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/klvykyymwvg/chart.png)

![](https://www.globalbankingandfinance.com/wp-content/uploads/2022/07/326.jpg)

5/ WATCH JUNK

Corporate sector stress, especially at the [lower end](https://www.financedigest.com/wall-st-ends-lower-treasury-yields-slide-as-data-fuels-recession-jitters.html "Wall St ends lower, Treasury yields slide as data fuels recession jitters") of the credit spectrum, is another warning signal.

[Financing costs](https://www.financedigest.com/finance-teams-have-been-left-in-the-dark-on-the-real-cost-of-working-from-home.html "Finance teams have been left in the dark on the real cost of working from home") for sub-investment grade, or “junk” U.S. companies stand just below 8%, having almost doubled this year, while in [euro markets](https://www.financedigest.com/stellantis-makes-30-billion-euro-wager-on-electric-vehicle-market.html "Stellantis makes 30 billion euro wager on electric vehicle market"), yields have soared to 6.4% from 2.8% in early-2022.

(Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/dwvkrbblxpm/chart.png)

![](https://www.globalbankingandfinance.com/wp-content/uploads/2022/07/325.jpg)

6/ NO CONFIDENCE

Citi’s Economic Surprise Index, measuring the degree to which data [beats or misses forecasts](https://www.financedigest.com/truck-maker-volvo-posts-record-q1-as-sales-margins-beat-forecasts.html "Truck maker Volvo posts record Q1 as sales, margins beat forecasts"), is down sharply for Europe and the United States.

[Consumer confidence](https://www.financedigest.com/weary-wall-street-cheers-improved-consumer-confidence.html "Weary Wall Street cheers improved consumer confidence") moves are especially noteworthy; the U.S. Conference [Board’s consumer confidence index fell to a nearly 1-1/2 year](https://www.financedigest.com/ericssons-board-rebuked-by-shareholders-at-agm-for-second-year-in-a-row.html "Ericsson’s board rebuked by shareholders at AGM for second year in a row") low in July while German sentiment will hit another record low in August, a survey forecast.

“The No. 1 point is consumer confidence, reflecting worsening purchasing power,” Indosuez [Wealth Management](https://www.financedigest.com/analysis-credit-suisse-collapse-threatens-switzerlands-wealth-management-crown.html "Analysis-Credit Suisse collapse threatens Switzerland’s wealth management crown") CIO Vincent Manuel, said.

The University of Michigan [consumer sentiment](https://www.financedigest.com/irish-consumer-sentiment-dips-slightly-on-tech-job-losses.html "Irish consumer sentiment dips slightly on tech job losses") index, currently around 50, is approaching “recession levels,” he added.

(Graphics: https://graphics.reuters.com/GLOBAL-MARKETS/RECESSIONRISK/akpezwwjnvr/chart.png)

![](https://www.globalbankingandfinance.com/wp-content/uploads/2022/07/324.jpg)

(Reporting by Dhara Ranasinghe and Sujata Rao, additional reporting by Yoruk Bahceli in Amsterdam, graphics by Vincent Flasseur, Editing by Tommy Reggiori Wilkes and Toby Chopra)


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