FedEx Corporation (NYSE:FDX), which rose to prominence during the epidemic expansion in internet sales, recently stated that the slowdown in its business is an indication of an impending worldwide recession caused by consumers worldwide cutting down on their spending.
Sales Projection of FedEx Corporation
FedEx Corporation (NYSE: FDX) reduced its sales projection for the year ahead last week, citing the severe deterioration in economic conditions as the primary reason. Undoubtedly, FedEx’s lackluster performance can be attributed partly to the company’s inability to control expenses effectively.
However, since it has such a significant footprint in Asia, where the majority of consumer products are created, it serves as a precursor for demand worldwide. Data produced by FreightWaves, a business specializing in freight market analytics, show that ocean container bookings have been pointing to a distinct slowdown since June. This is even though large backlogs at ports masked a decline in consumer demand until very recently.
According to a JP Morgan analyst on September 16, “We previously noted that the lack of a ‘freight wave’ from China’s re-opening was a negative sign,” but “it appears to have impacted FedEx Corporation (NYSE: FDX) first as the leading airfreight carrier in the Asia Pac region,” the report stated. The analysts pointed out that UPS will likely experience a similarly detrimental impact on its profits, even though the company has a lower exposure to the region.
It is not just FedEx Corporation (NYSE:FDX) sounding the alarm about the possibility of a worldwide economic slowdown. Recently, the World Bank warned that the global economy might enter a recession in the following year if central banks continue to raise interest rates to manage inflation. That would set off a chain reaction of financial collapses in developing nations. Many are already reeling from the effects of the COVID-19 pandemic.
Fedex Corporation’s bad performance comes at the same time when consumer demand in the United States has begun to wane due to the contraction in the housing market. Central banks are not letting up on their efforts. (Up to this point, Americans’ consumer spending has kept the rest of the world’s economies afloat.)
According to the World Bank, persistent supply bottlenecks, the prolonged conflict in Ukraine, and rising interest rates all threaten large economies that, if allowed to continue, would bring about a global recession. Given the record-high inflation, the global oil shock, and the worldwide tightening of monetary policy, it isn’t easy to imagine those economies turning around anytime soon. Because so many nations hold debt denominated in US dollars, those countries have no choice but to boost their interest rates to keep up with the Federal Reserve’s rapid hiking cycle; otherwise, their currencies will fall against the dollar even more quickly. Later this week, market participants anticipate the Federal Reserve to implement an additional rate hike of 75 basis points.
What other options do developed economies have besides raising interest rates and hoping for the best? The World Bank recommends that they investigate the possibility of introducing supply-side measures, which would reduce the pressure placed on global labor markets, energy markets, and trade markets. This might be distributing additional vaccines against the COVID-19 strain, freeing oil from strategic reserves, or lowering tariffs.
Featured Image: DepositPhotos © monticello
Author Valerie Remorosa 
