Fears for global economy as US slides deeper into recession


Fears for global economy as US slides deeper into recession…and German inflation hits record high

  • Officials in Washington said production fell in the second quarter of the year
  • This followed the decline in the first quarter – leaving the US economy in recession
  • The collapse is a headache for the Fed as it hikes rates in an effort to crush soaring inflation

The United States has become the first major economy to sink 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.

This followed a decline in the first quarter – leaving the world’s largest economy in recession, which is commonly defined as two consecutive quarters of economic contraction.

Downtrend: In a report that sent shockwaves through the global economy, officials in Washington said output fell in the second quarter of the year.

The crisis is a headache for the Federal Reserve, the American central bank, which raises interest rates in order to crush galloping inflation. And in another setback for the global economy, official figures in Germany showed inflation hit 8.5% this month, the highest level since reunification more than three decades ago.

Danni Hewson, financial analyst at AJ Bell, said: “Inflation is raging like wildfire, hitting earnings, undermining confidence and softening demand.”

The US economy contracted at an annual rate of 0.9% in the second quarter of the year, beating analysts’ forecasts of 0.5% growth. After the disappointing 1.6% fall in the first quarter, this means that the United States is now in a technical recession.

The grim data came just hours after the Fed unveiled a gigantic second interest rate hike – of 0.75 percentage points – in its battle to bring soaring prices under control.

Central banks have raised rates at unprecedented speeds, hoping to encourage saving rather than spending to bring down inflation. But officials fear it could also reverse the Covid recovery – a fear that appears to have become a reality across the Atlantic.

On a quarterly basis – the measure used by most European countries – the United States fell about 0.4% in the first three months of the year and about 0.2% in the three last months. It is one of the first major economies to release its second quarter figures – but it could soon be joined in recessionary territory as other countries release their own statistics.

France fell 0.2% in the first quarter, and while economists forecast growth of 0.2% from April to June, traders will be worried about signs of a bigger than expected slowdown in America.

Germany, heavily dependent on Russian gas, is also on the brink of a recession as Moscow cuts supplies to Europe. Second quarter figures for Germany, France and the entire Eurozone are due out today.

The White House, citing low unemployment, maintained that the economy is still strong.

Staff from the National Bureau of Economic Research, which also assesses a range of factors such as unemployment, did not declare an official recession.

But the data will put 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 Democrats under Biden of turning the United States into a “sink of crime” that has become “a begging nation, crawling to others for energy.”

Biden said, “It’s no surprise the economy is slowing as the Federal Reserve moves to bring inflation down.” But even as we face historic global challenges, we are on the right track and we will get through this transition stronger and safer. Our labor market remains historically strong.

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