Are we heading for global recession?
Economists divided over future course of world economy
Debate about the future course of the global economy is intensifying as it has clearly passed its peak and appears to be heading for a recession.
Korea is particularly vulnerable to a global downturn as it is a small, open economy with a heavy reliance on exports. If the world economy slips into recession, it will become a perfect storm for the local economy, already beset by sagging domestic demand.
Renowned think tanks, investment banks and scholars are equally divided into two camps on whether the global economy is heading for a recession.
Some say this is the case and it will be second only to the Great Depression, while others claim skeptics are too jumpy.
It is clear there are more pessimists who claim the global economy will be under the current slowdown for a while rather than seeing a turnaround, according to numerous sources at home and abroad.
The World Bank said in a recent study, “Darkening Skies,” that global economic growth is projected to soften from a downwardly revised 3 percent in 2018 to 2.9 percent in 2019, citing rising downside risks.
Global bigwigs also reveal their fears.
“It would be very surprising to see markets sort of stabilize here and then take off,” former Federal Reserve Chairman Alan Greenspan said in a recent interview with CNN.
Another former chief of the Fed, Chairwoman Janet Yellen, also displayed her concerns about mounting corporate debt.
“High levels of corporate leverage could prolong the downturn and lead to lots of bankruptcies,” she told CNBC.
Yale University economist and Nobel laureate Robert Shiller said the steep run-up in the current market rally is similar to the excesses of the 1920s before the October 1929 market crash and Great Depression.
“I look at 1929 particularly as the end of the roaring 1920s and it ended in a bout of speculation. Between May and September of 1929 the stock market went up over 30 percent in just a few months,” Shiller said in an interview with CNBC.
“We’re not exactly in that circumstance but we do have the market that has surged since 2009 so there is something of that spirit today.”
They commonly blamed the ongoing U.S.-China trade dispute, worsening corporate earnings, mounting global debt and China’s deteriorating economic indices for the possible global recession.
International Monetary Fund Managing Director Christine Lagarde said the global economy is expected to shrink because of the trade tension between the U.S. and China.
New York University economist ‘Dr. Doom’ Nouriel Roubini said in a recent column the Trump administration’s policies will bring about stagflation and that the risks of a financial crisis and depression are growing.
However, big-name optimists claimed skeptics are exaggerating current developments.
“I think markets are overreacting to short-term sentiment around a whole bunch of complex issues,” J.P. Morgan Chase CEO Jamie Dimon said in a Fox Business interview.
“My view is that the consumer is in good shape and is continuing to grow, and they have backwinds with jobs and wages going up. I think you’re going to have decent growth in 2019 in America.”
Former Fed Chairman Ben Bernanke also said he is unworried about the recent selloff in U.S. equities.
“Having our experience 10 years ago, we’re certainly not seeing those kinds of risks,” he said during a recent panel discussion with former Treasury Secretaries Henry Paulson and Timothy Geithner.
“I found it actually quite surprising how benign markets were for such a long time, despite the risks of trade wars and other things that were going on.”