Global growth has boomed
GDP is set to rise 3.8pc in 2018, the strongest pace since the post-recession rebound of 4.3pc in 2011. But the trend could be coming to an end, writes Tim Wallace.
Analysts are slashing forecasts. Credit ratings agency Fitch and the OECD have cut predictions. The Bank for International Settlements, a global group of central banks, said rising debts and overstretched financial markets could be warning signs.
Investment managers are at their most pessimistic since 2011, according to a Bank of America Merrill Lynch survey.
A significantly weaker global economy could have knock-on effects for the UK, with serious implications for Conservative and Labour policies. The deficit would be higher, on lower tax receipts and higher spending.
Strong export demand, which has boosted the economy and eases the Brexit process by presenting a friendly global market, could disappear, flavouring future trade talks.
It is worth considering how this could come to pass. The latest fear is that the driver of this expansion, the US economy, could stumble. Interest-rate hikes are a classic trigger to turn boom into bust. The Federal Reserve has pushed rates up eight times in three years. It has not stopped the economy yet, with tax cuts fuelling investment, pay rises and confidence.
But with the trade war taking hold, economists are worried tighter money and slowing global trade could tip the US into recession in 2020. The scale of such a downturn is expected to be limited, however.
Memories of the financial crisis mean the word “recession” is often taken to mean another giant crunch. This does not need to be the case. In economic terms a recession takes place when GDP falls for two consecutive quarters, so even a very mild dip, which is quickly overturned with more growth, would count.
Capital Economics predicts US growth will almost halve by 2020 – from 2.8pc this year to 2.2pc in 2019 and 1.5pc the year after.
Paul Ashworth, its chief US economist, says: “With limited signs of major imbalances, asset bubbles or credit build-up, however, we would expect such a recession to be modest.”
This indicates it would be a more traditional short recession caused by a stimulus dissipating, rather than a crash built up by years of overexuberance.