With the rise in inflation in the whole world, central banks tended to raise interest rates simultaneously, and it is known that raising them is reflected in financing mechanisms and facilitating cash in an easy way, whether for factories or consumers, in other words, raising interest rates is very similar to a human right to a wide-impact antibiotic , which will combat all types of bacteria in the body without distinguishing between what is beneficial and what is harmful, and this of course leads to exhaustion of the body that has to compensate for the beneficial bacteria, and it is almost the same mechanism when interest rates are raised.
While the fight against inflation seeks to curb the revolting demand, production is also affected, and that is from two aspects, the first is the inability to access financing easily, and the other is the restriction of demand, and if relations continue in this direction, the world is heading towards a global recession and a series of financial crises in Emerging markets and developing economies would cause them permanent damage, according to a study published on the World Bank website. To address the problem, according to that study, and to achieve low inflation rates, currency stability, and faster growth, policymakers can shift their focus from reducing consumption to boosting production, while seeking to use policies that generate additional investment and improve productivity and capital allocation, which are critical to growth and poverty reduction. However, a recent report published by Al-Eqtisadiah provides different evidence. The slowdown in global demand has led to a decline in manufacturing activity in parts of Europe and the United States, and it still represents a major challenge for many major exporters in Asia. Things are going the opposite of what should be done.
The study confirms that economic policy makers must take strong steps to enhance global supply, including easing labor market restrictions by increasing labor force participation to reduce price pressures, and this includes facilitating the redistribution of displaced workers, and global trade networks must be strengthened by easing supply bottlenecks. Also from the oversupply of goods, this last recommendation faces challenges. Although the United States managed to boost employment to a nine-month high, manufacturing contracted for a seventh month as new orders continued to fall and eurozone purchasing managers’ indices moved below break-even despite factories cutting prices for the first time since September. 2020.
In Britain, production fell for the third month and new orders fell at the fastest pace in four months. In confirmation of this, the chief economist at the Hamburg Commercial Bank said: “The weakness of demand in the manufacturing sector, which was clearly reflected in the decline in the readings of the purchasing managers’ index since the beginning of the year. This reading confirms that the ability of factories to increase the global supply of goods is declining, which leads to the next crisis.” The World Bank warned.
Here is other evidence, as the Hamburg Commercial Bank’s final index of purchasing managers for the manufacturing sector in the euro area fell to 44.8 after the index was at a reading of 45.8 in April, and thus it is less than a reading of 50, which is the boundary between growth and contraction, meaning that there is a decline In growth, it may be classified as contraction if the situation continues until the end of the year, especially since this decline is widespread in the four largest economies in the eurozone, which are Germany, France and Italy.
In contrast to this trend in the United States and Europe, purchasing managers’ indices in China and Japan showed a tendency for factory activity to grow last month, but this is not widespread in all of Asia. Rather, South Korea, Vietnam and Taiwan showed opposite trends, and this inconsistency casts a shadow over growth expectations. In Asia, the opinion of analysts came that PMI surveys indicate a recovery in the Chinese economy, with the index crossing the threshold of 50, reaching 50.9 in May, up from 49, but the analysts returned to reservations, saying: “It was at a slower pace, even if the support decreased.” The financial impact on construction activity,” adding to the ambiguity of the stage, is that a survey of business confidence in China for the next 12 months showed a decline to its lowest level in seven months, amid concerns about the global economic outlook.
In Japan, despite the increase in the purchasing manager’s index to 50.6 in May, which is the first reading above the 50 threshold since last October, the production of Japanese factories unexpectedly declined in April, and in South Korea the index reached 48.4 points, recording The longest march of readings indicating contraction in 14 years after slowing global demand affected production and orders, and surveys showed that Vietnam, Malaysia and Taiwan also witnessed a contraction in factory activity in May, while the activity of the Philippines expanded and the activity of India factories increased.
With this description of the global scene, the decline in production takes the form of a global wave that continues to expand, and this may reduce supply in a way that may coincide with the decline in the purchasing power of consumers, which enhances the survival of inflation at levels higher than 5 percent and the global economy languishes in a long recession before it begins. The effect of this is the gradual emergence of jobs, and the world’s central banks and investment policy makers must urgently reconsider these effects, which may predict a long-term global economic crisis.
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