Don’t mention the ‘R’ word – world’s biggest economies at risk of recession
CARTOON: Financial Times
Five big economies are at risk of recession – Germany, Italy, Mexico, Brazil and the UK. A recession is usually defined as two consecutive quarters of contraction in an economy. Locally Singapore and Hong Kong are teetering on technical recessions, both vital regional business hubs.
The UK economy shrunk in the second quarter, and growth has flat lined in Italy. Germany’s economy, the world’s fourth largest, contracted in the second quarter.
The causes? A lot of economists say there’s a war of confidence in the markets with background noises of the US-China trade war, the Brexit farce, and a perfect storm of a global manufacturing slump and wounded business sentiment.
A global economic shakiness bordering on mild panic.
China’s towering economy is growing at the slowest pace in nearly three decades as the protracted trade war with the US intensifies sending even more shockwaves around the globe.
Now it’s been announced that the US will impose new taxes on Chinese exports in September and December. With the trade imbalance as it is, the US has more weapons to throw at the trade spat. But China’s resolve and deep commitment to spreading it’s economic wings over the last decade – principally its Belt and Road program – will allow it to absorb a lot of the short-term pain.
Chinese businesses are already well into the process of finding other export options (finalisation of RCEP, the largest trade bloc in the world will be wrapped up by the end of the year) and alternatives to US suppliers for specific parts for local manufacturing.
The International Monetary Fund cut its forecast for global growth this year to 3.2% last month, the weakest rate of expansion in a decade. It also downgraded its expectations for 2020 to 3.5%.
More than a third of asset managers surveyed by Bank of America expect a global recession in the next 12 months and the sentiment in bond markets is for contraction in most economies.
With fears of a chaotic Brexit helping to drag down the German and some European economies, the most pain is being felt in the UK, where the economy is shrinking for the first time since 2012. If the UK PM Boris Johnson does what he says – a ‘no deal’ Brexit on October 31 – a recession would be unavoidable.
In Italy, it’s a very local problem of weak productivity, high youth unemployment, huge debt and political turmoil contributing to its sluggish economy. Mexico and the country’s services sector are under pressure causing a loss of investment, and further south in Brazil, the largest economy in Latin America, weak industrial production, rancorous politics and high unemployment are killing off potential for growth.
Locally, the central banks of India and Thailand have slashed interest rates – in Thailand the effort is to curb its strong currency – and more cuts are expected.
The good news, if there is any, is for local expats and Thai importing anything into the country or travelling overseas. The Thai baht one of the few shining lights in the world economy at the moment.
