Sharply higher interest rates, red-hot inflation and a prolonged energy crisis are leading to conviction that the world economy is headed inexorably towards recession.

It’s a risk US Treasury Secretary Janet Yellen and European Central Bank chief Christine Lagarde have acknowledged even if neither considers it a baseline scenario. Federal Reserve chief Jerome Powell rejects the notion.

Paul O’Connor, head of the multi-asset team at Janus Henderson, notes that since 1955 “the US economy has always experienced a recession within two years from every quarter in which inflation was above 4 percent and unemployment was below 5percent, as they are today.”

The International Monetary Fund this week warned inflation and war may push the world economy to the brink of recession.

Here’s what some key recession risk indicators say:

1. Old favourite

The US Treasury yield curve has a track record of predicting recessions, especially when two-year yields rise above 10-year maturities. The 2/10s yield curve has inverted before every one of the last 10 US recessions.

The yield gap between the two maturities is around -20 bps, and was recently its most inverted since 2000.

Central banks are jacking up interest rates. The Fed just delivered a second 75 basis-point increase on Wednesday to tame 9.1 percent inflation.

2. Gas-flation

Some investors tie global recession risks to gas supplies from Russia.

The IMF says a complete supply cut to Europe by year-end and another 30 percent drop in Russian oil exports would see European and US growth at virtually zero.

Global growth could slow to 2 percent in 2023, it warns, a level effectively amounting to recession given population growth and poor countries’ need for faster expansion.

European gas prices have soared 180 percent already this year .

An “inflationary recession” in Europe this year will ripple outward, asset manager PIMCO said, noting the United States sends a third of its exports to Europe and relies on European Union producers for 25 percent of its imports.

3. PMI shock

Purchasing Managers Indexes are reliable predictors of manufacturing, services, inventories, orders, and therefore future growth. So, the unexpected contraction in US and euro zone July PMIs sparked an investor dash for the safety of bonds.

For Citi analysts, the July PMIs confirm that Germany is in recession, with the euro area not far behind.

Within global PMIs, higher inventories typically signal slower growth, especially if accompanied by a slide in new orders. Goldman Sachs noted this ratio hit its lowest level since May 2020 this month.

4. COunting commodities

Copper, a growth bellwether, is down 22 percent this year .

Dubbed “Dr Copper” because of its record as a boom-bust indicator, the metal has also seen its price ratio to safe-haven gold hit an 18-month low.

Standard Chartered said recessionary fears had caused a fall in base metal prices and it had revised down its forecasts.

Brent crude prices have also slid for two straight months.

5. Watch junk

Corporate sector stress, especially at the lower end of the credit spectrum, is another warning signal.

Financing costs for sub-investment grade, or “junk” US companies stand just below 8 percent, having almost doubled this year, while in euro markets, yields have soared to 6.4 percent from 2.8 percent in early-2022.

6. No confidence

Citi’s Economic Surprise Index, measuring the degree to which data beats or misses forecasts, is down sharply for Europe and the United States.

Consumer confidence moves are especially noteworthy; the US Conference Board’s consumer confidence index fell to a nearly 1-1/2 year low in July while German sentiment will hit another record low in August, a survey forecast.

“The No. 1 point is consumer confidence, reflecting worsening purchasing power,” Indosuez Wealth Management CIO Vincent Manuel, said.

The University of Michigan consumer sentiment index, currently around 50, is approaching “recession levels,” he added.