Charting the Global Economy: Factory Activity Sags on Inflation

(Bloomberg) — The global economy is showing signs of wearing down with inflation pressures persisting during the third month of a war-induced energy crunch.

Factory activity as measured by S&P Global either slowed or even contracted across the board on all indexes released Thursday, apart from the UK and US.

Meanwhile, inflation concerns have driven long-term yields for Group of Seven sovereign bonds to a two-decade high this week.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy, markets and geopolitics:

World

Surveys of purchasing managers from Australia to the Europe pointed to an intensifying ordeal for manufacturing and services companies in May. As with April, the worst impact was seen in the euro zone, with plummeting gauges in France delivering the biggest surprise. Manufacturing there and in the region’s biggest economy, Germany, has now just succumbed to a phase of shrinking activity.

One inflation spike in the 2020s might be an accident, the world’s biggest bond markets seem to have decided, but two looks like an alarming new trend. The Iran war is inflicting another wave of price hikes on a global economy that’s barely recovered from the last one. As all the economic damage mounts, it’s starting to rattle the safest haven in world finance: the $50 trillion-plus market for Group of Seven sovereign bonds, where long-term yields hit a two-decade high this week.

In addition to Iceland, Indonesia’s central bank delivered a larger-than-expected hike in interest rates, while Mauritius also tightened policy. Egypt, Nigeria, Ghana, Jamaica and Paraguay kept rates unchanged.

A benchmark Asia rice price rose to the highest in more than a year, as worries loom over harvests across the region. The US Department of Agriculture forecast global rice production in the 2026-27 season to decline for the first time in 11 years.

Asia

Japan’s banks are grappling with a problem that was unthinkable a few years ago. Loans are growing faster than deposits. The country is seeing an explosion of borrowing as businesses boost capital investment and buyout deals get bigger.

Three of Asia’s most vulnerable economies are showing rising strains as their central banks come under pressure to tighten policy even as the economic hit from the Iran-war oil shock deepens. Indonesia, the Philippines and India are already grappling with capital outflows and free-falling currencies as Middle East tensions hurt consumers and companies alike. Now, global bond ructions are piling on further pressure.

China’s growth slowed across the board in April with investment resuming declines, calling into question the government’s reluctance to add stimulus to the economy as a global energy crisis hits factories and consumers across the world. Official data on Monday painted a picture of an economy where booming exports no longer offset deteriorating consumption at home.

Europe

UK inflation fell to its lowest rate in more than a year, prompting traders to bet on fewer Bank of England interest-rate hikes even though economists expect price pressures to return. The consumer prices index rose 2.8% in the year to April, down from 3.3% the previous month, reflecting more favorable annual comparisons and government support with bills.

Switzerland’s economy grew faster than anticipated in the first quarter, weathering a spike in energy prices and a strengthening franc that each took effect at the outbreak of the Iran war. Gross domestic product adjusted for large sport events rose 0.5% from the previous three months, according to a preliminary estimate.

US

Consumer sentiment fell in May to a record low and long-term inflation expectations worsened notably due to the Iran war.

Housing starts declined in April as construction of single-family homes dropped by the most in nearly a year, suggesting builders are growing cautious amid higher mortgage rates.

Emerging Markets

Iceland’s central bank raised borrowing costs for a second time since the outbreak of the Middle East war to quell persistent price pressure. Icelandic policymakers are among the few globally that struggled to contain price pressure even before the energy-price shock of the Iran war. The inflation rate exceeded 5% for the fourth month in a row in March.

–With assistance from Irina Anghel, Bastian Benrath-Wright, Megan Durisin, Claire Jiao, Yujing Liu, Mark Niquette, Swati Pandey, Tom Rees, Ragnhildur Sigurdardottir, Craig Stirling, María Paula Mijares Torres, Taiga Uranaka and Charlie Zhu.

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