"Recession Fears Loom as US Economy Slows Down, While Barclays Warns UK of a Rocky Road Ahead"

 

The US economy has slowed down sharply in the first quarter of 2023, which has led economists to warn that the country is already in recession. Official figures show that the world's biggest economy grew at an annualised pace of 1.1% in the first three months of the year, compared to 2.6% in the final quarter of 2022. Despite robust consumer spending, it was less than economists' expectations of 2% growth, and it is likely to shrink outright in the second and third quarters of the year. This slowdown in business activity could make people nervous and put a brake on spending.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the first quarter's growth was boosted by one-off factors, including the warmer weather and a one-off cost of living adjustment to benefits. This suggests that the current economic growth is not sustainable in the long run. He also warned that a sharp slowdown in business activity in the coming months would hit the economy, while slower hiring is likely to make people nervous.

President Joe Biden has announced he will run for re-election in 2024, touting his efforts to revive the American economy after the pandemic. However, the current economic slowdown is a significant blow to his re-election campaign. This slowdown has been attributed to the nine consecutive interest rate rises by the Federal Reserve, which are starting to drag on growth.

In the UK, Goldman Sachs has warned that interest rates will hit 5%, potentially saddling thousands of homeowners with hundreds of pounds in extra mortgage payments. The Bank of England has been “too pessimistic” about the UK economy, with growth likely to be stronger than expected in the coming months, forcing policymakers to lift rates from their current 4.25% level. The investment bank expects the Bank to continue to hike rates in 25bp steps until 5%, despite its reluctance to do so.

Despite Barclays posting its strongest quarterly profit since 2011, its CEO CS Venkatakrishnan has warned that the UK economy is still not “out of the woods”. The macro-economic outlook around the world is better than it was six months ago, but it is still not back to what is required for a “soft landing”. Inflation is falling, and growth is flattish, but it still requires caution as the rate-rising cycle is not complete.

In conclusion, the global economic outlook is facing challenges due to rising interest rates, the effects of the pandemic, and global inflation. The warning signs of a global economic slowdown have been evident in recent months, and policymakers will need to take corrective measures to prevent the situation from worsening.