Major Economies Confront Economic Contraction and Price Rise

The flash PMI survey data for September reveals a concerning scenario of economic contraction coupled with rising prices in major developed economies, marking a collective contraction in these economies for the second consecutive month, as disclosed in a recent analysis by S&P Global.

This contraction is characterized by falling business activity in the Eurozone and a deepening downturn in the UK, with the U.S. showing near-stalled business activity. Conversely, Japan is the only major developed economy currently observing robust growth, according to S&P Global.

The service sectors, especially in the Eurozone and the UK, have been notably impacted, with a lesser extent of impact recorded in the U.S. S&P Global suggests that this divergence is likely due to the varying monetary policy stances in these economies, affecting their interest-rate-sensitive service sectors.

Price pressures are persisting, primarily in the service sector, creating challenges for policymakers aiming to achieve a 2% inflation rate. A renewed rise in manufacturing input costs, linked to higher oil prices, is highlighted by S&P Global as an additional inflationary risk in the forthcoming months.

The survey data from S&P Global depict rising recession risks in Europe and potential sluggish growth in the U.S. as the year ends, with inflation pressures remaining somewhat elevated by historical standards. These trends are creating a complex environment for the world's major central banks to navigate.

Business activity across the four largest developed world economies, known as the "G4," experienced a decline for a second successive month in September. S&P Global indicates that this suggests a renewed weakening of the developed world economy in the third quarter following a solid second quarter. The overall decline was modest, but a faster decline in new orders for goods and services is hinting at a likely further reduction in production capacity in the coming months.

Europe is leading this economic slowdown, with both the Eurozone and the UK reporting falling output in September. The contraction in the UK is the steepest since the global financial crisis in early 2009, excluding the pandemic lockdown months. The Eurozone, while contracting at a slightly weaker rate than in August, is still experiencing one of the steepest declines since the debt crisis of 2021.

In terms of employment trends, there are significant divergences among the major economies, as reported by S&P Global. The U.S. is experiencing an upturn in employment growth, the Eurozone’s job market is largely stalled, and the UK is seeing a marked drop in employment due to a combination of falling demand for staff and low labor supply.

On the inflation front, S&P Global’s surveys signal persistent inflationary pressures in both input costs and average selling prices across the G4. The service sector is experiencing the strongest inflationary pressures, and input costs in manufacturing are ticking higher across the G4 for the first time in five months, often attributed to higher fuel prices.

Beroe View

S&P Global’s analysis provides a detailed insight into the economic challenges confronting major developed economies, underscoring the unwelcome blend of economic contraction and rising prices, and the ensuing challenges for policymakers and central banks.

The insights from S&P Global underscore significant implications for the procurement function. The persistent inflationary pressures and rising input costs, particularly in manufacturing due to higher oil and fuel prices, necessitate strategic adjustments and heightened vigilance in cost management.

Procurement teams must navigate these economic contractions and price elevations by optimizing sourcing strategies, renegotiating contracts, and exploring alternative suppliers to mitigate risks and ensure supply chain resilience. The ongoing challenges in major economies and the potential for further economic downturns emphasize the critical role of procurement in maintaining operational stability and supply continuity.

If you are interested to learn about how best Beroe can help your Procurement team to navigate current and future challenges, please write to: contactus@beroe-inc.com