US faces ‘onein-three chance’ of recession over the next year
THE US economy faces a one-in-three chance of sliding into recession in the next 12 months, credit ratings agency Standard and Poor’s warned, as a series of economic signals flash red.
The “spectre of global recession” is stalking the world economy as the trade war between the US and China harms both countries, the eurozone is on the brink of contraction and central bankers have little support to offer, economists said.
“Unpredictability on the trade front and a persistent weak global industrial backdrop are the key reasons for high alert,” said Beth Ann Bovino of S&P, in a note to investors yesterday. “Any kind of agreement between the US and China that eases unpredictability would help prevent delaying business investment, which is currently wielding a headwind on outlook for demand – and recessions are usually caused by inadequate demand.”
Luigi Speranza, chief global economist at BNP Paribas, said: “The overall picture will feel like a recession, and we expect data in the short run to do little to assuage market concerns that that’s where the global economy is heading.”
The Us-china trade war is “here to stay”, he added, warning that central banks can do little to help as the power of interest rate cuts and money printing seems to be diminishing. He is preparing to slash the investment bank’s forecasts for world growth.
Businesses in the US are increasingly scared of making big investments, while tariffs are starting to drain consumers’ spending power and exports are struggling. US industrial production slid 0.4pc month on month in July, joining the wider industrial slump.
The EU’S exports and imports of goods slumped in June compared with last year, according to Eurostat data. It comes as the German and UK economies both contracted in the second quarter.
“We are now very much on recession watch,” said economist Michelle Meyer at Bank of America Merrill Lynch (BAML), warning that “policy mistakes” are a classic cause of recessions, and the tariff war may be just that.
“The trade war is a slow-motion train wreck and the wounds from the Great Recession are still fresh.”
The warnings come after bond markets “inverted”, with government borrowing costs for the long term falling below those in the short term in an indication investors expect a slump. More than a quarter of all bonds are trading at negative interest rates.
Even rock-bottom interest rates appear unable to stave off the downturn. Sweden this week borrowed money for 10 years with a negative interest rate, underlining the extraordinary position of monetary policy and global markets.
A third of the fund managers controlling the world’s wealth believe a recession is on the way, according to BAML’S surveys. Berenberg Bank also slashed its economic forecasts as analysts stopped anticipating a resolution to the trade row.
Germany is one of the most severely affected with its GDP forecast cut by more than half to just 0.6pc next year, though the entire eurozone will slow to below 1pc. Japan has downgraded its outlook to 0.8pc and the UK’S forecast growth has been trimmed to 1.6pc.