The global economy's delicate balance was clear on Friday as data showed the slowest UK growth in three years and a 10-year inflation peak in Japan, with only a surprise rise in US durable goods orders beating the gloom. The contrasting fortunes shown by the figures pointed up the quandary facing central bankers around the world as they try to check surging inflation pressures without choking off growth. Britain's were the first G7 GDP figures for the April-June period, and the slowdown there may be a taste of things to come as the global economy buckles under the weight of soaring oil prices and a credit crunch. Britain's economy came closer to a recession on Friday after official data showed it had slowed further during the second quarter as the construction and manufacturing industries weakened. Gross domestic product grew by only 0.2 percent in the April to June period compared with the first three months of 2008. This was the slowest pace of economic growth for more than three years, according to the Office for National Statistics. The data followed gloomy figures for the eurozone, Germany and France on Thursday which analysts said also raised the specter of possible recession. “Weaker construction and production output drove the deceleration in growth, which was partially offset by increased growth in the service industries,” the ONS said as it gave its first estimates for second-quarter GDP. The data matched analyst consensus forecasts, after Britain's economy grew 0.3 percent in the first quarter of 2008 compared with the final three months of 2007. “The 0.2-percent rise ... shows that the economy has weakened dramatically even before the full impact of the credit squeeze and housing downturn has been felt,” said Capital Economics analyst Paul Dales. “An outright recession is now our central scenario. With industrial production having fallen in both (the first and second quarters), industry is already in recession. “Overall growth would have been much weaker if a gain in transport and communication output (in the second quarter) did not push services output growth up from 0.3 percent in (the first quarter) to 0.4 percent,” said Dales, an expert on the British economy. The ONS added on Friday that Britain's economy had grown 1.6 percent during the second quarter when compared with the year-earlier period -- the smallest annual expansion since the second quarter of 2005. Analysts had forecast an year-on-year growth rate of 1.7 percent. The month-on-month figure of 0.2 percent growth was also the slowest quarterly gain since the first three months of 2005. Britain's economy expanded 2.3 percent during the first quarter when compared with the year-earlier period. Business leaders at the British Chambers of Commerce on Friday warned of a “dramatic worsening in economic prospects.” “The position is likely to deteriorate in the second half of the year. We now expect zero or negative growth in the next two or three quarters,” said its economic adviser David Kern. The technical definition of a recession is when an economy contracts for two or more quarters in a row. Construction output in Britain fell by 0.7 percent in the second quarter owing to a “particularly large” fall in new house building, the ONS said. In recent weeks, British homebuilders have axed about 5,000 jobs as house prices fall also amid surging inflation and sliding retail sales. ING Bank economist James Knightley on Friday said recession “seemed probable” for Britain. He added: “The credit crunch coupled with falling house prices and rising food and energy costs are continuing to constrain activity, yet fiscal and monetary policy can do nothing to ease the pain.” In Japan, after years of the country battling deflation, core inflation hit its highest level in more than a decade because of a huge jump in energy and processed food costs. At the same time, exports in the trading nation fell in June for the first time in nearly five years, in another example of the toxic mix of high inflation and slow growth most developed economies are facing. However, there were signs of economic resilience in the United States where new orders for long-lasting manufactured goods increased unexpectedly in June on a surge in defense orders, while a gauge of business investment also was higher than forecast. Durable goods orders were up 0.8 percent after a revised 0.1 percent gain in May. Analysts polled by Reuters were expecting durable goods orders to slip 0.3 percent. The Bank of Japan also looks likely to keep interest rates on hold for a while longer after it raised them to 0.5 percent in February last year. Its preferred core consumer price index, which excludes fresh food products, rose 1.9 percent in June from a year earlier, close to the upper limit of the range described by BoJ board members as consistent with price stability. “The further jump in inflation in June should help to kill any lingering speculation that the next move in Japanese interest rates is down,” said Tehmina Khan of Capital Economics in London. The European Central Bank hiked interest rates this month to combat inflation and Governing Council member Klaus Liebscher said on Friday it was far from ready to give the all
