A sharp slowdown in the stateside economy is set to throttle global growth this year, Wall Street analysts are forecasting.
A wave of worker absences caused by the Omicron variant sweeping across the US has led to the American economy stumbling out of the blocks in 2022, according to Goldman Sachs.
Americans will slash spending and tighten their belts due to soaring inflation – which is running at its highest level in the US since the 1980s at seven per cent – eating into their budgets.
Intense supply and demand side pressures has prompted Goldman to cut its 2022 US growth forecasts to 3.2 per cent, lower than the 3.8 per cent consensus.
“Growth is likely to slow abruptly in 2022” as Omicron “prolongs supply chain disruptions,” analysts at Goldman said.
A rapid rate hike cycle from the US Federal Reserve this year is also set to hold back growth across the pond.
Some economists have priced in seven hikes from the Fed, while the Bank of England could lift rates as many as five times in 2022, starting at its meeting tomorrow, according to City analysts.
Separate data published today reinforced Goldman’s gloomy prediction and pointed to a sign of things to come in the UK.
Activity among US factories slowed to the weakest level since October 2020 driven by Omicron undoing an easing in supply chain choke points and forcing workers to stay at home.
Chris Williamson, chief business economist at IHS Markit, who compiled the figures, said: “The Omicron outbreak has hit manufacturing hard, exacerbating existing headwinds by subduing demand, creating further supply chain issues and causing widespread staff shortages.”
Meanwhile, mounting costs for raw materials have squeezed British factories’ margins, prompting them to lift prices to protect profits. As a result, demand for industrial output is cooling.
IHS Markit’s PMI for the UK manufacturing industry inched down over the last month to 57.3, down from 57.9 in December.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “Signs have emerged this month… that rapid increases in output prices in the second half of 2021 have undermined demand.”
Factories are holding off from raising prices further over fears it will crush orders, Dickens added.